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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 2, 2004
Commission file number 0-14030
ARK RESTAURANTS CORP.
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New York 13-3156768
------------------------------- --------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
85 Fifth Avenue, New York, NY 10003
- ---------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 206-8800
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $0.01.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value at December 29, 2004 of shares of the
Registrant's Common Stock, $.01 par value (based upon the closing price per
share of such stock on the Nasdaq National Market) held by non-affiliates of the
Registrant was approximately $129,683,000. Solely for the purposes of this
calculation, shares held by directors and officers of the Registrant have been
excluded. Such exclusion should not be deemed a determination or an admission by
the Registrant that such individuals are, in fact, affiliates of the Registrant.
At December 16, 2004, there were outstanding 3,391,299 shares of the
Registrant's Common Stock, $.01 par value.
Documents Incorporated by Reference: Portions of the Registrant's definitive
proxy statement to be filed not later than 120 days after the end of the fiscal
year covered by this form are incorporated by reference in Part III, Items 10,
11, 12, 13 and 14 of this Report.
PART I
Item 1. Business
Overview
Ark Restaurants Corp. (the "Registrant" or the "Company") is a New York
corporation formed in 1983. Through its subsidiaries, it owns and operates 22
restaurants and bars, 26 fast food concepts, catering operations, and wholesale
and retail bakeries. Initially its facilities were located only in New York
City. At this time, nine of the restaurants are located in New York City, four
are located in Washington, D.C., and nine are located in Las Vegas, Nevada. The
Company's Las Vegas operations include:
o three restaurants within the New York-New York Hotel & Casino Resort, and
operation of the resort's room service, banquet facilities, employee dining room
and nine food court operations;
o two restaurants, two bars and four food court facilities at the Venetian
Casino Resort;
o one restaurant at the Neonopolis Center at Fremont Street; and
o one restaurant within the Forum Shops at Caesar's Shopping Center.
In 2004, the Company established operations in Florida which include five fast
food facilities in Tampa, Florida and eight fast food facilities in Hollywood,
Florida, each at a Hard Rock Hotel and Casino operated by the Seminole Indian
Tribe at these locations. All pre-opening expenses were borne by outside
investors who invested in a limited liability company established to develop,
construct, operate and manage these facilities. The Company is the managing
member of this limited liability company and, through this limited liability
company, the Company leases and manages the operations of each of these
facilities in exchange for a monthly management fee equal to five-percent of the
gross receipts of these facilities. Neither the Company nor any of its
subsidiaries contributed any capital to this limited liability company. None of
the obligations of this limited liability company are guaranteed by the Company
and investors in this limited liability company have no recourse against the
Company or any of its assets.
In addition to the shift from a Manhattan-based operation to a multi-city
operation, the nature of the facilities operated by the Company has shifted from
smaller, neighborhood restaurants to larger, destination restaurants intended to
benefit from high patron traffic attributable to the uniqueness of the
restaurant's location. Most of the Company's restaurants which are in operation
and which have been opened in recent years are of the latter description. These
include the restaurant operations at the New York-New York Hotel & Casino in Las
Vegas, Nevada (1997); the Stage Deli located at the Forum Shops in Las Vegas,
Nevada, Red, located at the South Street Seaport in New York (1998); Thunder
Grill in Union Station, Washington, D.C. (1999); two restaurants and four food
court facilities at the Venetian Casino Resort in Las Vegas, Nevada (2000); The
Saloon, at the Neonopolis Center in downtown Las Vegas, Nevada (2002); and the
13 fast food facilities in Tampa, Florida and Hollywood, Florida, respectively
(2004). The Company recently entered into agreements to operate a Gallagher's
Steakhouse restaurant and a separate bar, yet to be named, to be constructed in
the Resorts Atlantic City Hotel and Casino in Atlantic City, New Jersey. Apart
from these agreements, the Company is not currently committed to any new
projects. The Company has sold a number of its smaller, neighborhood
restaurants.
The names and themes of each of the Company's restaurants are different except
for the Company's three America restaurants, two Sequoia restaurants, two
Gonzalez y Gonzalez restaurants and, when opened in Atlantic City, two
Gallagher's Steakhouse restaurants. The menus in the Company's restaurants are
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extensive, offering a wide variety of high quality foods at generally moderate
prices. Of the Company's restaurants, the Lutece restaurant may be classified as
expensive. The atmosphere at many of the restaurants is lively and extremely
casual. Most of the restaurants have separate bar areas. A majority of the net
sales of the Company is derived from dinner as opposed to lunch service. Most of
the restaurants are open seven days a week and most serve lunch as well as
dinner.
While decor differs from restaurant to restaurant, interiors are marked by
distinctive architectural and design elements which often incorporate dramatic
interior open spaces and extensive glass exteriors. The wall treatments,
lighting and decorations are typically vivid, unusual and, in some cases, highly
theatrical.
The following table sets forth information with respect to the Company's
facilities currently in operation.
Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- -------------------- --------------------------- --------- --------------- ----------- -------------
Metropolitan Cafe(4) First Avenue 1982 4,000 180(50) 2006
(between 52nd and 53rd
Streets)
New York, New York
America 18th Street 1984 9,600 350 2014
(between Fifth Avenue
and Broadway)
New York, New York
El Rio Grande (5)(6) Third Avenue 1987 4,000 160 2014
(between 38th and 39th
Streets)
New York, New York
Gonzalez y Gonzalez Broadway 1989 6,000 250 2007
(between Houston and
Bleecker Streets)
New York, New York
America Union Station 1989 10,000 400(50) 2009
Washington, D.C.
Center Cafe Union Station 1989 4,000 200 2009
Washington, D.C.
Sequoia Washington Harbour 1990 26,000 600(400) 2017
Washington, D.C.
Sequoia South Street Seaport 1991 12,000 300(100) 2006
New York, New York
Canyon Road First Avenue 1984 2,500 130 2014
(between 76th and 77th
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Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- -------------------- --------------------------- --------- --------------- ----------- -------------
Streets)
New York, New York
Columbus Bakery Columbus Avenue 1988 3,000 75 2012
(between 82nd and 83rd
Streets) New York, New York
Bryant Park Grill & Bryant Park 1995 25,000 180(820) 2025
Cafe(7) New York, New York
Columbus Bakery First Avenue 1995 2000 75 2006
(between 52nd and 53rd
Streets)
New York, New York
America(8) New York-New York Hotel 1997 20,000 450 2017(8)
and Casino
Las Vegas, Nevada
Gallagher's New York-New York 1997 5,500 260 2017(8)
Steakhouse(8) Hotel & Casino
Las Vegas, Nevada
Gonzalez y New York-New York 1997 2,000 120 2017(8)
Gonzalez(8) Hotel & Casino
Las Vegas, Nevada
Village Eateries New York-New York 1997 6,300 400(*) 2017(8)
(8)(9) Hotel & Casino
Las Vegas, Nevada
The Grill Room (10) World Financial Center 1997 10,000 250 2011
New York, New York
The Stage Deli Forum Shops 1997 5,000 200 2008
Las Vegas, Nevada
Red South Street Seaport 1998 7,000 150(150) 2013
New York, New York
Thunder Grill Union Station 1999 10,000 500 2019
Washington, D.C.
Venetian Food Court Venetian Casino Resort 1999 5,000 300(*) 2014
Las Vegas, Nevada
4
Seating
Capacity(2)
Year Restaurant Size Indoor- Lease
Name Location Opened(1) (Square Feet) (Outdoor) Expiration(3)
- -------------------- --------------------------- --------- --------------- ----------- -------------
Tsunami Grill Venetian Casino Resort 1999 13,000 300 2019
Las Vegas, Nevada
Lutece Venetian Casino Resort 1999 6,400 90(90) 2019
Las Vegas, Nevada
Venus Venetian Casino Resort 2001 9,700 250 2019
Las Vegas, Nevada
V-Bar Venetian Casino Resort 2000 3,000 100 2015
Las Vegas, Nevada
The Saloon(11) Neonopolis Center 2002 6,000 200 2014
at Fremont Street
Las Vegas, Nevada
Tampa Food Court(5) Hard Rock Hotel and 2004 4,000 250(*) 2029
Casino
Tampa, Florida
Hollywood Food Hard Rock Hotel and 2004 5,000 250(*) 2029
Court(5) Casino
Hollywood, Florida
- ----------
(1) Restaurants are, from time to time, renovated and/or renamed. "Year Opened"
refers to the year in which the Company or an affiliated predecessor of the
Company first opened, acquired or began managing a restaurant at the
applicable location, notwithstanding that the restaurant may have been
renovated and/or renamed since that date.
(2) Seating capacity refers to the seating capacity of the indoor part of a
restaurant available for dining in all seasons and weather conditions.
Outdoor seating capacity, if applicable, is set forth in parentheses and
refers to the seating capacity of terraces and sidewalk cafes which are
available for dining only in the warm seasons and then only in clement
weather.
(3) Assumes the exercise of all available lease renewal options.
(4) The landlord has the option to terminate the lease for this restaurant at
any time after October 1, 2003 with thirty (30) day's prior written notice.
(5) Restaurant owned by a third party and managed by the Company. Management
fees earned by the Company are based on a percentage of cash flow of the
restaurant.
(6) The Company owns a 19% interest in the partnership that owns El Rio Grande.
(7) The lease governing a substantial portion of the outside eating area of
this restaurant expires in 2005.
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(8) Includes two five-year renewal options exercisable by the Company if
certain sales goals are achieved during the two year period prior to the
exercise of the renewal option. Under the America lease, the sales goal is
$6.0 million. Under the Gallagher's Steakhouse lease the sales goal is $3.0
million. Under the lease for Gonzalez y Gonzalez and the Village Eateries,
the combined sales goal is $10.0 million. Each of the restaurants is
currently operating at a level substantially in excess of the minimum sales
level required to exercise the renewal option for each respective
restaurant.
(9) The Company operates eight small food court restaurants in the Villages
Eateries food court at the New York-New York Hotel & Casino. The Company
also operates that hotel's room service, banquet facilities and employee
cafeteria.
(10) The restaurant experienced damage in the attack on the World Trade Center
on September 11, 2001. In addition, substantial damage was sustained by the
World Financial Center in which the restaurant is located. The restaurant
closed on September 11, 2001 and reopened in early December 2002.
(11) Restaurant owned by a third party and managed by the Company. The Company
receives $7,000 per month for managing the restaurant.
(*) Represents common area seating.
Restaurant Expansion
The Company recently entered into agreements to operate a Gallagher's Steakhouse
restaurant and a separate bar, yet to be named, to be constructed in the Resorts
Atlantic City Hotel and Casino in Atlantic City, New Jersey.
The opening of a new restaurant is invariably accompanied by substantial
pre-opening expenses and early operating losses associated with the training of
personnel, excess kitchen costs, costs of supervision and other expenses during
the pre-opening period and during a post-opening "shake out" period until
operations can be considered to be functioning normally. The amount of such
pre-opening expenses and early operating losses can generally be expected to
depend upon the size and complexity of the facility being opened. The Company
incurred no pre-opening expenses or early operating losses in fiscal 2004.
The Company's restaurants generally do not achieve substantial increases from
year to year in revenue, which the Company considers to be typical of the
restaurant industry. To achieve significant increases in revenue or to replace
revenue of restaurants that lose customer favor or which close because of lease
expirations or other reasons, the Company would have to open additional
restaurant facilities or expand existing restaurants. There can be no assurance
that a restaurant will be successful after it is opened, particularly since in
many instances the Company does not operate its new restaurants under a trade
name currently used by the Company, thereby requiring new restaurants to
establish their own identity.
Apart from these agreements, the Company is not currently committed to any
projects. The Company may take advantage of opportunities it considers to be
favorable, when they occur, depending upon the availability of financing and
other factors.
Recent Restaurant Dispositions and Charges
In fiscal 2003, the Company determined that its restaurant, Lutece, located in
New York City, had been impaired by the events of September 11th and the
continued weakness in the economy. Based upon the sum of the future undiscounted
cash flows related to the Company's long-lived fixed assets at Lutece, the
Company determined that impairment had occurred. To estimate the fair value of
such long-lived fixed assets, for determining the impairment amount, the Company
used the expected present value of the
6
future cash flows. The Company projected continuing negative operating cash flow
for the foreseeable future with no value for subletting or assigning the lease
for the premises. As a result, the Company determined that there was no value to
the long-lived fixed assets. The Company had an investment of $667,000 in
leasehold improvements, furniture fixtures and equipment. The Company believed
that these assets would have nominal value upon disposal and recorded an
impairment charge of $667,000 during fiscal 2003. Due to continued weak sales,
the Company closed Lutece during the second quarter of 2004. The Company
recorded a net operating losses of $804,000 during the fiscal year ended October
2, 2004 which is included in losses from discontinued operations. The Company
also incurred a one-time charge of $470,000 related to pension plan
contributions required in connection with the closing of Lutece which is payable
monthly over a nine year period beginning May 17, 2004 and bears interest at a
rate of 8% per annum.
On December 1, 2003, the Company sold a restaurant, Lorelei, for approximately
$850,000. The book value of inventory, fixed assets, intangible assets and
goodwill related to this entity was approximately $625,000. The Company recorded
a gain on the sale of approximately $225,000 during the first quarter of fiscal
2004 which is included in losses from discontinued operations. Net operating
losses of $145,000 were recorded in discontinued operations in the 39-week
period ended June 26, 2004. There were no additional expenses related to this
restaurant during the fiscal year ended October 2, 2004.
The Company's restaurant Ernie's, located on the upper west side of Manhattan
opened in 1982. As a result of a steady decline in sales, the Company felt that
a new concept was needed at this location. The restaurant was closed June 16,
2003 and reopened in August 2003. Total conversion costs were approximately
$350,000. Sales at the new restaurant, La Rambla, failed to reach the level
sufficient to achieve the results the Company required. As a result, the Company
sold this restaurant on January 1, 2004 and realized a gain on the sale of this
restaurant of approximately $214,000. Net operating losses of $230,000 were
included in losses from discontinued operations for the fiscal year ended
October 2, 2004.
The Company's restaurant Jack Rose located on the west side of Manhattan has
experienced weak sales for several years. In addition, this restaurant did not
fit the Company's desired profile of being in a landmark destination location.
As a result, the Company sold this restaurant on February 23, 2004. The Company
realized a loss on the sale of this restaurant of $137,000 which was recorded
during the second quarter of fiscal 2004. The Company recorded net operating
losses of $148,000 during fiscal 2004 for this restaurant. These losses are
included in losses from discontinued operations.
With regard to the Company's America restaurant in New York, New York, as of
October 2, 2004, the Company has classified the assets and liabilities of this
restaurant as "held for sale" in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("FAS 144") based on the fact that the Company has met the
criteria under FAS 144. The Company expects the sale of this restaurant to be
completed in the second quarter of 2005.
Restaurant Management
Each restaurant is managed by its own manager and has its own chef. Food
products and other supplies are purchased primarily from various unaffiliated
suppliers, in most cases by Company headquarters' personnel. The Company's
Columbus Bakery supplies bakery products to most of the Company's New York City
restaurants in addition to operating a retail bakery. The Company's Columbus
Bakery in Las Vegas supplies bakery products to most of the Company's Las Vegas
restaurants in addition to operating a wholesale bakery. Each of the Company's
restaurants has two or more assistant managers and sous
7
chefs (assistant chefs). Financial and management control is maintained at the
corporate level through the use of an automated data processing system that
includes centralized accounting and reporting.
Purchasing and Distribution
The Company strives to obtain quality menu ingredients, raw materials and other
supplies and services for its operations from reliable sources at competitive
prices. Substantially all menu items are prepared on each restaurant's premises
daily from scratch, using fresh ingredients. Each restaurant's management
determines the quantities of food and supplies required and orders the items
from local, regional and national suppliers on terms negotiated by the Company's
centralized purchasing staff. Restaurant-level inventories are maintained at a
minimum dollar-value level in relation to sales due to the relatively rapid
turnover of the perishable produce, poultry, meat, fish and dairy commodities
that are used in operations.
The Company attempts to negotiate short-term and long-term supply agreements
depending on market conditions and expected demand. However, the Company does
not contract for long periods of time for its fresh commodities such as produce,
poultry, meat, fish and dairy items and, consequently, such commodities can be
subject to unforeseen supply and cost fluctuations. Independent foodservice
distributors deliver most food and supply items daily to restaurants. The
financial impact of such supply agreements, would not have a material adverse
effect on the Company's financial position.
Employees
At December 10, 2004, the Company employed 2,038 persons (including employees at
managed facilities), 1,465 of whom were full-time employees, 573 of whom were
part-time employees, 33 of whom were headquarters personnel, 201 of whom were
restaurant management personnel, 599 of whom were kitchen personnel and 1,205 of
whom were restaurant service personnel. A number of the Company's restaurant
service personnel are employed on a part-time basis. Changes in minimum wage
levels may affect the labor costs of the Company and the restaurant industry
generally because a large percentage of restaurant personnel are paid at or
slightly above the minimum wage. The Company's employees are not covered by a
collective bargaining agreement.
Government Regulation
The Company is subject to various federal, state and local laws affecting its
business. Each restaurant is subject to licensing and regulation by a number of
governmental authorities that may include alcoholic beverage control, health,
sanitation, environmental, zoning and public safety agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining or
failures to obtain the required licenses or approvals could delay or prevent the
development and openings of new restaurants, or could disrupt the operations of
existing restaurants.
Alcoholic beverage control regulations require each of our restaurants to apply
to a state authority and, in certain locations, county and municipal authorities
for licenses and permits to sell alcoholic beverages on the premises. Typically,
licenses must be renewed annually and may be subject to penalties, temporary
suspension or revocation for cause at any time. Alcoholic beverage control
regulations impact many aspects of the daily operations of our restaurants,
including the minimum ages of patrons and employees consuming or serving such
beverages; employee alcoholic beverages training and certification requirements;
hours of operation; advertising; wholesale purchasing and inventory control of
such beverages; seating of minors and the service of food within our bar areas;
and the storage and dispensing of alcoholic beverages. State and local
authorities in many jurisdictions routinely monitor compliance with alcoholic
beverage laws. The failure to receive or retain, or a delay in obtaining, a
liquor license for a
8
particular restaurant could adversely affect the Company's ability to obtain
such licenses elsewhere.
The Company is subject to "dram-shop" statutes in most of the states in which it
has operations, which generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully served
alcoholic beverages to such person. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance. A
settlement or judgment against the Company under a "dram-shop" statute in excess
of liability coverage could have a material adverse effect on operations.
Various federal and state labor laws govern the Company's operations and its
relationship with employees, including such matters as minimum wages, breaks,
overtime, fringe benefits, safety, working conditions and citizenship
requirements. The Company is also subject to the regulations of the Immigration
and Naturalization Service (INS). If employees of the Company do not meet
federal citizenship or residency requirements, this could lead to a disruption
in the Company's work force. Significant government-imposed increases in minimum
wages, paid leaves of absence and mandated health benefits, or increased tax
reporting, assessment or payment requirements related to employees who receive
gratuities could be detrimental to the profitability of the Company.
The Company's facilities must comply with the applicable requirements of the
Americans With Disabilities Act of 1990 ("ADA") and related state statutes. The
ADA prohibits discrimination on the basis of disability with respect to public
accommodations and employment. Under the ADA and related state laws, when
constructing new restaurants or undertaking significant remodeling of existing
restaurants, the Company must make them more readily accessible to disabled
persons.
The New York State Liquor Authority must approve any transaction in which a
shareholder of the Company increases his holdings to 10% or more of the
outstanding capital stock of the Company and any transaction involving 10% or
more of the outstanding capital stock of the Company.
Seasonal Nature Of Business
The Company's business is highly seasonal. The second quarter of the Company's
fiscal year, consisting of the non-holiday portion of the cold weather season in
New York and Washington (January, February and March), is the poorest performing
quarter. The Company achieves its best results during the warm weather,
attributable to the Company's extensive outdoor dining availability,
particularly at Bryant Park in New York and Sequoia in Washington, D.C. (the
Company's largest restaurants) and the Company's outdoor cafes. However, even
during summer months these facilities can be adversely affected by unusually
cool or rainy weather conditions. The Company's facilities in Las Vegas
generally operate on a more consistent basis through the year.
Terrorism and International Unrest
The terrorist attacks on the World Trade Center in New York and the Pentagon in
Washington, D.C. on September 11, 2001 had a material adverse effect on the
Company's revenues. As a result of the attacks, one Company restaurant, The
Grill Room, located at 2 World Financial Center, which is adjacent to the World
Trade Center, experienced some damage. The Grill Room was closed from September
11, 2001 and reopened in early December 2002.
The Company's restaurants in New York, Las Vegas, Washington D.C. and Florida
benefit from tourist traffic. Though the Las Vegas market has shown resiliency,
the sluggish economy and the lingering effects of September 11, 2001 have had an
adverse effect on the Company's restaurants. Recovery
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depends upon a general improvement in economic conditions and the public's
willingness and inclination to resume vacation and convention travel. Additional
acts of terrorism in the United States or substantial international unrest may
have a material adverse effect on the Company's business and revenues.
Forward Looking Statements and Risk Factors
This report contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth under "Item 1. Business" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" as well as throughout this report generally. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those discussed below.
The restaurant business is intensely competitive and involves an extremely high
degree of risk. The Company believes that a large number of new restaurants open
each year and that a significant number of them do not succeed. Even successful
restaurants can rapidly lose popularity due to changes in consumer tastes,
turnover in personnel, the opening of competitive restaurants, unfavorable
reviews and other factors. There can be no assurance that the Company's existing
restaurants will retain such patronage as they currently enjoy or that new
restaurants opened by the Company will be successful. There is active
competition for competent chefs and management personnel and intense competition
among major restaurateurs and food service companies for the larger, unique
sites suitable for restaurants.
To achieve significant increases in revenue or to replace revenue of restaurants
which experience declining popularity or which close because of lease
expirations or other reasons, the Company would have to open additional
restaurant facilities. The opening of new restaurants is subject to a wide
variety of uncertainties, including the ability to negotiate favorable lease
provisions, the location of the restaurant, the development of a menu and
concept that appeals to consumers and the availability of skilled restaurant
managers. The acquisition or construction of new restaurants also requires
significant capital resources. New large-scale projects that have been the focus
of the Company's efforts in recent years would likely require additional
financing. If the Company were to identify a favorable restaurant opportunity,
there is no assurance that the required financing would be available.
Item 2. Properties
The Company's restaurant facilities and the Company's executive offices are
occupied under leases. Most of the Company's restaurant leases provide for the
payment of base rents plus real estate taxes, insurance and other expenses and,
in certain instances, for the payment of a percentage of the Company's sales at
such facility. These leases (including leases for managed restaurants) have
terms (including any available renewal options) expiring as follows:
Years Lease Number of
Terms Expire Facilities
- ------------ ----------
2006-2010 7
2011-2015 9
2016-2020 9
2021-2025 1
2026-2030 2
10
The Company's executive, administrative and clerical offices are located in
approximately 8,500 square feet of office space at 85 Fifth Avenue, New York,
New York. In October 2003 the Company's landlord for this property commenced an
action against the Company stating that the Company failed to validly exercise
its five-year renewal option to extend the lease through October 2008. The
Company currently occupies this property pending the result of litigation with
its landlord. See "Item 3. Legal Proceedings" for a discussion regarding this
litigation.
The Company's lease for office space related to its Washington, D.C. catering
operations expires in 2012.
For information concerning the Company's future minimum rental commitments under
non-cancelable operating leases, see Note 8 of Notes to Consolidated Financial
Statements.
See also "Item 1. Business - Overview" for a list of restaurant properties.
Item 3. Legal Proceedings
In the ordinary course of its business, the Company is a party to various
lawsuits arising from accidents at its restaurants and workers' compensation
claims, which are generally handled by the Company's insurance carriers.
The employment by the Company of management personnel, waiters, waitresses and
kitchen staff at a number of different restaurants has resulted in the
institution, from time to time, of litigation alleging violation by the Company
of employment discrimination laws. The Company does not believe that any of such
suits will have a materially adverse effect upon the Company, its financial
condition or operations.
Several unfair labor practice charges were filed against the Company in 1997
with the National Labor Relations Board (NLRB) with respect to the Company's Las
Vegas subsidiary. The charges were heard in October 1997. At issue was whether
the Company unlawfully terminated nine employees and disciplined six other
employees allegedly in retaliation for their union activities. An Administrative
Law Judge (ALJ) found that six employees were terminated unlawfully, three were
discharged for valid reasons, four employees were disciplined lawfully and two
employees were disciplined unlawfully. On appeal, the NLRB found that the
Company lawfully disciplined five employees, and unlawfully disciplined one
employee. The Company appealed the adverse rulings of the NLRB to the D.C.
Circuit Court of Appeals. In July 2003 the D.C. Circuit Court of Appeals
affirmed the determinations of the NLRB. The Company offered to reinstate the
employees and all refused. The Company did incur any liability as a result.
In October 2003, the Company's landlord for its executive, administrative and
clerical offices located in New York, New York commenced an action against the
Company in the Supreme Court, New York County asserting the Company had failed
to validly exercise its option with respect to the premises at issue and that
the Landlord was entitled to immediate and exclusive possession of the premises.
The Company answered and asserted affirmative defenses and counterclaims. By an
order dated May 25, 2004, the court denied the landlord's motion for summary
judgment on its complaint while granting, in part, the landlord's motion to
dismiss the Company's affirmative defenses and counterclaims. Both the landlord
and the Company appealed from the May 25, 2004 order, but no decision on the
appeals has been issued. Pending the outcome of this litigation, the Company
remains in possession of the premises.
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Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The following table sets forth the names and ages of executive officers of the
Company and all offices held by each person:
Name Age Positions and Offices
- ---- --- ---------------------
Michael Weinstein 61 President and Chief Executive Officer
Vincent Pascal 61 Senior Vice President and Secretary
Robert Towers 57 Executive Vice President, Chief
Operating Officer and Treasurer
Paul Gordon 53 Senior Vice President
Robert Stewart 48 Chief Financial Officer
Each executive officer of the Company serves at the pleasure of the Board of
Directors and until his successor is duly elected and qualifies.
Michael Weinstein has been the President and a director of the Company since its
inception in January 1983. During the past five years, Mr. Weinstein has been an
officer, director and 25% shareholder of Easy Diners, Inc., RSWB Corp. and BSWR
Corp. (since 1998). Mr. Weinstein is the owner of 24% of the membership
interests in each of Dockeast, LLC and Dockwest, LLC. These companies operate
four restaurants in New York City, and none of these companies is a parent,
subsidiary or other affiliate of the Company. Mr. Weinstein spends substantially
all of his business time on Company-related matters.
Vincent Pascal was elected Vice President, Assistant Secretary and a director of
the Company in October 1985. Mr. Pascal became Secretary of the Company in
January 1994. Mr. Pascal became a Senior Vice President in 2001.
Robert Towers has been employed by the Company since November 1983 and was
elected Vice President, Treasurer and a director in March 1987. Mr. Towers
became an Executive Vice President and Chief Operating Officer in 2001.
Paul Gordon has been employed by the Company since 1983 and was elected as a
director in November 1996 and a Senior Vice President in 2001. Mr. Gordon is the
manager of the Company's Las Vegas operations. Prior to assuming that role in
1996, Mr. Gordon was the manager of the Company's operations in Washington, D.C.
since 1989.
Robert Stewart has been employed by the Company since June 2002 and was elected
Chief Financial Officer effective as of June 24, 2002. For the three years prior
to joining the Company, Mr. Stewart was a Chief Financial Officer and Executive
Vice President at Fortis Capital Holdings. For eleven years prior to joining
Fortis Capital Holdings, Mr. Stewart held senior financial and audit positions
in Skandinaviska Enskilda Banken in their New York, London and Stockholm
offices.
12
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Market Information
The Company's Common Stock, $.01 par value, is traded in the over-the-counter
market on the Nasdaq National Market under the symbol "ARKR." The high and low
sale prices for the Common Stock from September 28, 2002 through October 1, 2004
are as follows:
Calendar 2002 High Low
- ------------- ------- ------
Fourth Quarter $ 7.42 $ 6.05
Calendar 2003
- -------------
First Quarter 7.24 5.75
Second Quarter 7.75 6.20
Third Quarter 11.99 7.45
Fourth Quarter 14.35 11.15
Calendar 2004
- -------------
First Quarter 17.70 13.50
Second Quarter 23.55 17.01
Third Quarter 26.11 21.62
Dividends
A quarterly cash dividend in the amount of $0.35 per share was declared and paid
beginning on November 1, 2004. Prior to this, the Company has not paid any cash
dividends since its inception. The Company intends to continue to pay such
quarterly cash dividend for the foreseeable future.
Number of Shareholders
As of December 16, 2003, there were 54 holders of record of the Company's Common
Stock, $.01 par value. This does not include the number of persons whose stock
is in nominee or "street name" accounts through brokers.
13
Item 6. Selected Consolidated Financial Data
The following table sets forth certain financial data for the fiscal years
ended 2000 through 2004. During fiscal year 2004, the Company sold three
of its restaurants, closed one restaurant and considered one restaurant held for
sale in accordance with FAS 144. The operations of these restaurants have been
presented as discontinued operations for the 2004 fiscal year, and the Company
has reclassified its statements of operations data for the prior periods
presented below, in accordance with FAS 144. This information should be read in
conjunction with the Company's Consolidated Financial Statements and the notes
thereto beginning at page F-1.
Years Ended
--------------------------------------------------------------------------
October 2, September 27, September 28, September 29, September 30,
2004 2003 2002 2001 2000
---------- ------------- ------------- ------------- -------------
(In thousands, except per share data)
(a) (b) (c)
OPERATING DATA:
Total revenue $ 115,698 $102,733 $101,625 $ 106,844 $ 103,385
Cost and expenses (106,081) (96,980) (95,153) (101,198) (100,669)
Operating income 9,617 5,753 6,472 5,646 2,716
Other income (expense), net 543 403 (607) (2,223) (1,621)
Income from continuing operations
before provision for income
taxes and cumulative effect
of accounting change 10,160 6,156 5,865 3,423 1,095
Provision for income taxes 2,804 1,486 1,474 1,123 384
Income from continuing operations
before the cumulative effect
of accounting change 7,356 4,670 4,391 2,300 711
Loss from discontinued operations
before benefit for income
taxes and the cumulative effect
of accounting change (965) (1,781) (217) (13,614) (6,535)
Benefit for income taxes (266) (430) (55) (4,466) (2,290)
Income from discontinued operations
before the cumulative effect
of accounting change (699) (1,351) (162) (9,148) (4,245)
Cumulative effect of accounting
change--net -- -- -- -- (189)
NET INCOME (LOSS) 6,657 3,319 4,229 (6,848) (3,723)
NET INCOME (LOSS) PER SHARE:
Continuing operations basic $ 2.22 $ 1.46 $ 1.38 $ 0.72 $ 0.16
Discontinued operations basic $ (0.21) $ (0.42) $ (0.05) $ (2.88) $ (1.33)
--------- -------- -------- --------- ---------
Net basic $ 2.01 $ 1.04 $ 1.33 $ (2.16) $ (1.17)
Continuing operations diluted $ 2.13 $ 1.45 $ 1.37 $ 0.72 $ 0.16
Discontinued operations diluted $ (0.20) $ (0.42) $ (0.05) $ (2.88) $ (1.33)
--------- -------- -------- --------- ---------
Net diluted $ 1.93 $ 1.03 $ 1.32 $ (2.16) $ (1.17)
Weighted average number of shares
Basic 3,305 3,181 3,181 3,181 3,461
Diluted 3,444 3,213 3,206 3,186 3,476
BALANCE SHEET DATA (end of period):
Total assets $ 44,894 $ 43,635 $ 47,960 $ 53,091 $ 66,297
Working capital (deficit) 1,263 (4,802) (7,990) (6,569) (5,460)
Long-term debt -- 7,226 9,547 21,700 24,447
Shareholders' equity 34,200 24,826 21,446 17,173 24,065
Shareholders' equity per share 10.08 7.80 6.74 5.40 7.55
Facilities in operations--end of
year, including managed 48 41 41 47 49
(a) Fiscal 2003 income was adversely affected by an asset impairment charge
of $667,000 related to the fixed assets of a restaurant, Lutece, located in
New York.
(b)Fiscal 2001 income was adversely affected by an asset impairment charge
of $10,045,000 related to the Aladdin operations and a charge of $935,000
due to the cancellation of a development project.
14
(c)Fiscal 2000 income was adversely affected by an asset impairment charge
for a closed restaurant of $811,000, expenses of $280,000 from the sale of
a restaurant and a $1,300,000 charge associated with a wage and hour
lawsuit. Fiscal 2000 was also adversely affected by charges of $4,988,000
from the write-off of advances and working capital needs related to a
project the Company withdrew from.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Accounting period
The Company's fiscal year ends on the Saturday nearest September 30. The Company
reports fiscal years under a 52/53-week format. This reporting method is used by
many companies in the hospitality industry and is meant to improve year-to-year
comparisons of operating results. Under this method, certain years will contain
53 weeks. The fiscal years ended September 27, 2003 and September 28, 2002 each
included 52 weeks. The fiscal year ended October 2, 2004 included 53 weeks.
Overview
In connection with the consummated sale of three of the Company's restaurants,
the closure of one restaurant and the proposed sale of another restaurant, the
operations of these restaurants have been presented as discontinued operations
for the fiscal year ended 2004, and the Company has reclassified its statements
of operations data for the prior periods presented below, in accordance with FAS
144. See "Item 1 -Recent Restaurant Dispositions and Charges", "Item 7 - Recent
Restaurant Dispositions" and Note 2 of Notes to Consolidated Financial
Statements.
Revenues
Total revenues at restaurants owned by the Company increased by 12.6% from
fiscal 2003 to fiscal 2004 and increased by 1.1% from fiscal 2002 to fiscal
2003.
Same store sales increased 12.3%, or $12,984,000, on a Company-wide basis from
fiscal 2003 to fiscal 2004. This increase was the result of a 12.2%, or
$7,242,000, increase in same store sales at the Company's Las Vegas restaurants,
an 11.5%, or $3,560,000, increase in same store sales at the Company's New York
restaurants and a 14.3%, or $2,182,000, increase in same store sales at the
Company's Washington D.C. restaurants. The increases in New York and Washington
D.C. were principally due to the a general improvement in economic conditions,
the public's willingness and inclination to resume vacation and convention
travel and unusually good weather in these areas during spring and summer of
2004 which enabled the Company to use additional seating in its outdoor cafes.
Although the Company had not raised the price of menu items offered to its
customers for several years due to business conditions, the impact of the
increase in food costs during 2004 caused the Company to review the price of
menu items offered to its customers. The Company determined during 2004 to
increase the price of menu items offered to its customers in specific locations
where the Company believed consumer demand has created some elasticity.
During the fourth quarter of 2002 the Company abandoned its restaurant and food
court operations at the Desert Passage, the retail complex at the Aladdin Resort
& Casino in Las Vegas. During fiscal 2002 sales decreased 42.9% at this location
compared to fiscal 2001, resulting in the Company's decision to abandon these
operations. If this decrease is excluded from same store Las Vegas sales, the
Company's remaining operations in Las Vegas experienced a sales increase of
$190,000 during fiscal 2002.
Of the $11,896,000 decrease in revenues from fiscal 2001 to fiscal 2002,
$3,282,000 is attributable to the year long closure of the Grill Room restaurant
located in 2 World Financial Center, an office building adjacent to the World
Trade Center site. This restaurant was damaged in the September 11, 2001 attack
and reopened in early fiscal 2003. A $256,000 increase in sales is attributable
to the opening of the Saloon at the Neonopolis Center in downtown Las Vegas.
Other operating income, which consists of the sale of merchandise at various
restaurants, management fee income, door sales was $850,000 in fiscal 2004,
$679,000 in fiscal 2003 and $474,000 in fiscal 2002.
Costs and Expenses
Food and beverage cost of sales as a percentage of total revenue was 25.5% in
fiscal 2004, 24.7% in fiscal 2003 and 24.5% in fiscal 2002. Although this
expense as a percentage of total revenue increased from fiscal 2003 to 2004,
strong sales during fiscal 2004 allowed the Company the opportunity to create
relationships with new suppliers and increase the price of menu items offered to
its customers in specific locations where the Company believed consumer demand
has created some elasticity to offset increased food costs.
15
Total costs and expenses increased by $9,101,000, or 9.4%, from fiscal 2003 to
fiscal 2004. Increases in food costs, rent and payroll, as a result of the
increase in total revenues, contributed to this increase. Sales increases in
restaurants where the Company pays a percentage rent resulted in an increase in
percentage rent of $787,000 during fiscal 2004 compared to fiscal 2003. Other
operating costs and expenses also increased in fiscal 2004 due to the increase
in total revenue and a one time charge of $270,000 used to pay for casino
entertainment tax liability. The Company had previously thought that certain of
its operations at the Venetian Hotel Resort Casino were exempt from casino
entertainment tax due to the fact that such operations were not on the casino
floor. As subsequent tax ruling by tax authorities determined that such
operations were subject to casino entertainment tax and the Company determined
to include such charge in other operating costs and expenses.
Total costs and expenses increased by $1,827,000, or 1.9%, from fiscal 2002 to
fiscal 2003. During the first quarter of fiscal 2002 rent concessions granted by
landlords in the aftermath of the September 11, 2001 disaster were in place.
These concessions were not available during fiscal 2003 and as a result of this,
and other slight increases in rent levels, rent expense for fiscal 2003
increased by $291,000 when compared to fiscal 2002. Also, sales increases in
restaurants where the Company pays a percentage rent resulted in an increase in
percentage rent of $168,000 during fiscal 2003 compared to fiscal 2002. During
fiscal 2003 advertising expenses increased by $623,000 over fiscal 2002 as a
result of increased advertising for the operations in Las Vegas. Maintenance
expenses increased by $548,000 during fiscal 2003 compared to fiscal 2002. After
September 11, 2001 discretionary spending was sharply restricted. Though the
Company had continued to keep tight control over spending, maintenance of
restaurants has been performed when required and maintenance delayed during
fiscal 2002 has been completed.
Payroll expenses as a percentage of total revenues was 31.2% in fiscal 2004
compared to 32.3% in fiscal 2003 and 31.6% in fiscal 2002. Payroll expense was
$36,045,000, $33,176,000 and $32,084,000 in fiscal 2004, 2003 and 2002,
respectively. In fiscal 2003 and 2002, the Company had aggressively adapted its
cost structure in response to lower sales expectations following September 11th.
Due to the increase in sales during fiscal 2004, the Company had increased its
payroll expenses incrementally. The Company continually evaluates its payroll
expenses as they relate to sales.
No pre-opening expenses and early operating losses were incurred during fiscal
2004, 2003 or 2002. The Company did not open any new restaurants during fiscal
2003 and the Company received a construction and operating allowance from the
landlord for the Saloon at the Neonopolis Center at Freemont Street in downtown
Las Vegas, the one restaurant opened in fiscal 2002. The Company typically
incurs significant pre-opening expenses in connection with its new restaurants
that are expensed as incurred. Furthermore, it is not uncommon that such
restaurants experience operating losses during the early months of operation.
General and administrative expenses, as a percentage of total revenue, were 5.6%
in fiscal 2004, 6.5% in fiscal 2003 and 6.4% in fiscal 2002. The decrease in
these expenses as a percentage of total revenue during fiscal 2004 is primarily
due to increased total revenue during this period. General and administrative
expenses were adversely impacted by a $370,000 increase in casualty insurance
costs during fiscal 2002.
The Company managed two restaurants it did not own (The Saloon and El Rio
Grande) at October 2, 2004. The Company managed one restaurant it did not own
(El Rio Grande) at September 27, 2003 and September 28, 2002. Sales of El Rio
Grande, which are not included in consolidated sales, were $2,786,000 in fiscal
2004, $2,765,000 in fiscal 2003 and $2,973,000 in fiscal 2002. The Company's
lease of The Saloon is currently being converted into a management agreement,
effective as of August 22, 2004, whereby the Company will receive a management
fee of $7,000 per month, regardless of the results of operations of this
restaurant. The Company entered into agreements, during fiscal 2004, to manage
11 fast food restaurants located in the Hard Rock Casinos in Hollywood and
Tampa, Florida. Sales from these operations totaled $6,036,000 during the 2004
fiscal year.
Interest expense was $190,000 in fiscal 2004, $732,000 in fiscal 2003 and
$1,201,000 in fiscal 2002. The significant decreases during these periods was
due to lower outstanding borrowings on the Company's credit facility and the
benefit from rate decreases in the prime-borrowing rate. As of October 2, 2004,
the Company had no borrowings on its credit facility. Interest income was
$138,000 in fiscal 2004, $162,000 in fiscal 2003 and $133,000 in fiscal 2002.
Other income, which generally consists of purchasing service fees and other
income at various restaurants was $595,000, $973,000 and $461,000 for fiscal
2004, 2003 and 2002, respectively. Other income was impacted during fiscal 2003
by the Company's receipt of $508,000 in World Trade Center Grants for four
restaurants located in downtown New York that were adversely impacted by the
September 11, 2001 terrorist attacks.
16
Income Taxes
The provision for income taxes reflects Federal income taxes calculated on a
consolidated basis and state and local income taxes calculated by each New York
subsidiary on a non-consolidated basis. Most of the restaurants owned or managed
by the Company are owned or managed by a separate subsidiary.
For state and local income tax purposes, the losses incurred by a subsidiary may
only be used to offset that subsidiary's income, with the exception of the
restaurants operating in the District of Columbia. Accordingly, the Company's
overall effective tax rate has varied depending on the level of losses incurred
at individual subsidiaries. During fiscal 2002 the Company abandoned its
restaurant and food court operations at the Desert Passage, the retail complex
at the Aladdin Resort & Casino in Las Vegas. In fiscal 2002, the Company was
able to utilize the deferred tax asset created in fiscal 2001, by the impairment
of these operations. During the years ended September 27, 2003 and October 2,
2004, the Company decreased its allowance for the utilization of the deferred
tax asset arising from state and local operating loss carryforwards by $395,000
and $445,000 in such years based on the merger of certain unprofitable
subsidiaries into profitable ones.
The Company's overall effective tax rate in the future will be affected by
factors such as the level of losses incurred at the Company's New York
facilities, which cannot be consolidated for state and local tax purposes,
pre-tax income earned outside of New York City and the utilization of state and
local net operating loss carry forwards. Nevada has no state income tax and
other states in which the Company operates have income tax rates substantially
lower in comparison to New York. In order to utilize more effectively tax loss
carry forwards at restaurants that were unprofitable, the Company has merged
certain profitable subsidiaries with certain loss subsidiaries.
The Revenue Reconciliation Act of 1993 provides tax credits to the Company for
FICA taxes paid by the Company on tip income of restaurant service personnel.
The net benefit to the Company was $591,000 in fiscal 2004, $132,000 in fiscal
2003 and $755,000 in fiscal 2002.
During fiscal 2002, the Company and the Internal Revenue Service finalized the
adjustments to the Company's Federal income tax returns for fiscal years 1995
through 1998. The settlement did not have a material effect on the Company's
consolidated financial statements.
Liquidity and Sources of Capital
The Company's primary source of capital has been cash provided by operations and
funds available from its main bank, Bank Leumi USA. The Company from time to
time also utilizes equipment financing in connection with the construction of a
restaurant and seller financing in connection with the acquisition of a
restaurant. The Company utilizes capital primarily to fund the cost of
developing and opening new restaurants, acquiring existing restaurants owned by
others and remodeling existing restaurants owned by the Company.
The net cash used in investing activities in fiscal 2004 of ($1,336,000) was
primarily used for the replacement of fixed assets at existing restaurants. The
net cash used in investing activities in fiscal 2003 of ($1,434,000) was used
for the expansion of an existing restaurant in Las Vegas and for the replacement
of fixed assets at existing restaurants.
The net cash used in financing activities in fiscal 2004 ($5,106,000), fiscal
2003 ($8,356,000) and fiscal 2002 ($8,072,000) was principally due to repayments
of long-term debt on the Company's main credit facility in excess of borrowings
on such facility.
The Company had a working capital surplus of $1,263,000 at October 2, 2004 as
compared to a working capital deficit of $4,802,000 at September 27, 2003. The
restaurant business does not require the maintenance of significant inventories
or receivables; thus the Company is able to operate with negative working
capital.
The Company's Revolving Credit and Term Loan Facility (the "Facility") with its
main bank (Bank Leumi USA), as amended in November 2001, December 2001, April
2002, and February 2003, included a $26,000,000 credit line to finance the
development and construction of new restaurants and for working capital purposes
at the Company's existing restaurants. On July 1, 2002, the Facility converted
into a term loan in the amount of $17,890,000 payable in 36 monthly installments
of approximately $497,000. Upon amendment in February 2003, the term loan was
converted into a revolving loan. The credit line was reduced to $11,500,000 on
June 29, 2003 and $8,500,000 on September 29, 2003 until the maturity date of
February 12, 2005. As of October 2, 2004, the Company had no borrowings on its
credit facility. The loan bears interest at 1/2% above the bank's prime rate.
The Facility also includes a $500,000 Letter of Credit Facility for use in lieu
of lease security deposits. The Company has delivered $354,000 in
17
irrevocable letters of credit on this Facility at October 2, 2004. The Company
generally is required to pay commissions of 1 1/2% per annum on outstanding
letters of credit.
The Company's subsidiaries each guaranteed the obligations of the Company under
the Facility and granted security interests in their respective assets as
collateral for such guarantees. In addition, the Company pledged stock of such
subsidiaries as security for obligations of the Company under such Facility.
The Facility includes restrictions relating to, among other things, indebtedness
for borrowed money, capital expenditures, mergers, sale of assets, dividends and
liens on the property of the Company. The Facility also requires the Company to
comply with certain financial covenants at the end of each quarter such as
minimum cash flow in relation to the Company's debt service requirements, ratio
of debt to equity, and the maintenance of minimum shareholders' equity.
During the year ended September 27, 2003, the Company violated covenants related
to a limitation on employee loans and maintaining minimum cash flow in relation
to the Company's debt service requirements. During the year ended October 2,
2004, the Company violated covenants related to a restriction on the payment of
dividends and maintaining minimum cash flow in relation to the Company's debt
service requirements. The Company received waivers from the bank for the
covenants it was not in compliance with, for the years ended September 27, 2003
and October 2, 2004 through December 31, 2004.
In April 2000, the Company borrowed $1,570,000 from its main bank at an interest
rate of 8.8% to refinance the purchase of various restaurant equipment at the
Venetian. The note which is payable in 60 equal monthly installments through May
2005, is secured by such restaurant equipment. At October 2, 2004 the Company
had $251,000 outstanding on this facility.
The Company entered into a sale and leaseback agreement with GE Capital for
$1,652,000 in November 2000 to refinance the purchase of various restaurant
equipment at its food and beverage facilities in a hotel and casino in Las
Vegas, Nevada. The lease bears interest at 8.65% per annum and is payable in 48
equal monthly installments of $32,000 until maturity in November 2004 at which
time the Company has an option to purchase the equipment for $519,000.
Alternatively, the Company can extend the lease for an additional 12 months at
the same monthly payment until maturity in November 2005 and repurchase the
equipment at such time for $165,000.
The Company originally accounted for this agreement as an operating lease and
did not record the assets or the lease liability in the financial statements.
During the year ended September 29, 2001, the Company recorded the entire amount
payable under the lease as a liability of $1,600,000 based on the anticipated
abandonment of the Aladdin operations. In 2002, the operations at the Aladdin
were abandoned and at October 2, 2004 $496,000 remained accrued in other current
liabilities representing future operating lease payments.
In September 2001, a subsidiary of the Company entered into a lease agreement
with World Entertainment Centers LLC regarding the leasing of premises at the
Neonopolis Center at Freemont Street for the restaurant Saloon. The Company
provided a lease guaranty ("Guaranty") to induce the landlord to enter into the
lease agreement. The Guaranty is for a term of two years from the date of the
opening of the Saloon, May 2002, and during the first year of the Guaranty was
in the amount of $350,000. Upon the first anniversary of the opening of the
Saloon, May 2003, the Guaranty was reduced to $175,000 and it expired in May
2004.
A quarterly cash dividend in the amount of $0.35 per share was declared and paid
beginning on November 1, 2004, resulting in a payment of $1,187,000 to
shareholders of record as of October 22, 2004. Prior to this, the Company has
not paid any cash dividends since its inception. The Company intends to continue
to pay such quarterly cash dividend for the foreseeable future.
Contractual Obligations and Commercial Commitments
To facilitate an understanding of our contractual obligations and commercial
commitments, the following data is provided:
18
Payments Due by Period
--------------------------------------------------
Within After 5
Total 1 year 2-3 years 4-5 years years
------- ------ --------- --------- -------
(in thousands of dollars)
Contractual Obligations:
Debt $ 251 $ 251 -- $ -- $ --
Operating Leases 35,534 7,356 12,073 6,198 9,907
------- ------ ------- ------ ------
Total Contractual Cash Obligations $35,785 $7,607 $12,073 $6,198 $9,907
======= ====== ======= ====== ======
Amount of Commitment Expiration Per Period
------------------------------------------------
Within After 5
Total 1 year 2-3 years 4-5 years years
----- ------ --------- --------- -------
(in thousands of dollars)
Other Commercial Commitments:
Letters of Credit $354 $-- $354 $-- $--
---- --- ---- --- ---
Total Commercial Commitments $354 $-- $354 $-- $--
==== === ==== === ===
Restaurant Expansion
The Company recently entered into agreements to operate a Gallagher's Steakhouse
restaurant and a separate bar, yet to be named, to be constructed in the Resorts
Atlantic City Hotel and Casino in Atlantic City, New Jersey.
Recent Restaurant Dispositions and Charges
In fiscal 2003, the Company determined that its restaurant, Lutece, located in
New York City, had been impaired by the events of September 11th and the
continued weakness in the economy. Based upon the sum of the future undiscounted
cash flows related to the Company's long-lived fixed assets at Lutece, the
Company determined that impairment had occurred. To estimate the fair value of
such long-lived fixed assets, for determining the impairment amount, the Company
used the expected present value of the future cash flows. The Company projected
continuing negative operating cash flow for the foreseeable future with no value
for subletting or assigning the lease for the premises. As a result, the Company
determined that there was no value to the long-lived fixed assets. The Company
had an investment of $667,000 in leasehold improvements, furniture fixtures and
equipment. The Company believed that these assets would have nominal value upon
disposal and recorded an impairment charge of $667,000 during fiscal 2003. Due
to continued weak sales, the Company closed Lutece during the second quarter of
2004. The Company recorded a net operating losses of $804,000 during the fiscal
year ended October 2, 2004 which is included in losses from discontinued
operations. The Company also incurred a one-time charge of $470,000 related to
pension plan contributions required in connection with the closing of Lutece
which is payable monthly over a nine year period beginning May 17, 2004 and
bears interest at a rate of 8% per annum.
On December 1, 2003, the Company sold a restaurant, Lorelei, for approximately
$850,000. The book value of inventory, fixed assets, intangible assets and
goodwill related to this entity was approximately $625,000. The Company recorded
a gain on the sale of approximately $225,000 during the first quarter of fiscal
2004 which is included in losses from discontinued operations. Net operating
losses of $145,000 were recorded in discontinued operations for fiscal 2004.
There were no additional expenses related to this restaurant during the fiscal
year ended October 2, 2004.
The Company's restaurant Ernie's, located on the upper west side of Manhattan,
opened in 1982. As a result of a steady decline in sales, the Company felt that
a new concept was needed at this location. The restaurant was closed June 16,
2003 and reopened in August 2003. Total conversion costs were approximately
$350,000. Sales at the new restaurant, La Rambla, failed to reach the level
sufficient to achieve the results the Company required. As a result, the Company
sold this restaurant on January 1, 2004 and realized a gain on the sale of this
restaurant of approximately $214,000. Net operating losses of $230,000 were
included in losses from discontinued operations for the fiscal year ended
October 2, 2004.
19
The Company's restaurant Jack Rose located on the west side of Manhattan has
experienced weak sales for several years. In addition, this restaurant did not
fit the Company's desired profile of being in a landmark destination location.
As a result, the Company sold this restaurant on February 23, 2004. The Company
realized a loss on the sale of this restaurant of $137,000 which was recorded
during the second quarter of fiscal 2004. The Company recorded net operating
losses of $148,000 during fiscal 2004 for this restaurant. These losses are
included in losses from discontinued operations.
The Company's restaurant America, located in New York City, has experienced
declining sales for several years. In March 2004, the Company entered into a new
lease for this restaurant at a significantly increased rent. The Company entered
into this lease with the belief that due to the location and the uniqueness of
the space the lease had value. During fiscal 2004 the Company identified a buyer
for this restaurant and is currently completing negotiations for its sale. The
carrying amount of the fixed assets held for sale was approximately $128,000 as
of October 2, 2004. Net income of $60,000 has been included in losses from
discontinued operations for fiscal 2004. The Company expects the sale of this
restaurant to be completed during the second quarter of fiscal 2005.
Critical Accounting Policies
Financial Reporting Release No. 60, published by the SEC, recommends that all
companies include a discussion of critical accounting policies used in the
preparation of their financial statements. The Company's significant accounting
policies are more fully described in Note 1 to the Company's consolidated
financial statements. While all these significant accounting policies impact its
financial condition and results of operations, the Company views certain of
these policies as critical. Policies determined to be critical are those
policies that have the most significant impact on the Company's consolidated
financial statements and require management to use a greater degree of judgment
and estimates. Actual results may differ from those estimates.
The Company believes that given current facts and circumstances, it is unlikely
that applying any other reasonable judgments or estimate methodologies would
cause a material effect on the Company's consolidated results of operations,
financial position or liquidity for the periods presented in this report.
Below are listed certain policies that management believes are critical:
Use of Estimates
The preparation of financial statements requires the application of certain
accounting policies, which may require the Company to make estimates and
assumptions of future events. In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities, which are not readily apparent from other
sources. The primary estimates underlying the Company's financial statements
include allowances for potential bad debts on accounts and notes receivable, the
useful lives and recoverability of its assets, such as property and intangibles,
fair values of financial instruments, the realizable value of its tax assets and
other matters. Management bases its estimates on certain assumptions, which they
believe are reasonable in the circumstances, and actual results could differ
from those estimates. Although management does not believe that any change in
those assumptions in the near term would have a material effect on the Company's
consolidated financial position or the results of operation, differences in
actual results could be material to the financial statements.
Long-Lived Assets
The Company annually assesses any impairment in value of long-lived assets to be
held and used. The Company evaluates the possibility of impairment by comparing
anticipated undiscounted cash flows to the carrying amount of the related
long-lived assets. If such cash flows are less than carrying value the Company
then reduces the asset to its fair value. Fair value is generally calculated
using discounted cash flows. Various factors such as sales growth and operating
margins and proceeds from a sale are part of this analysis. Future results could
differ from the Company's projections with a resulting adjustment to income in
such period.
Deferred Income Tax Valuation Allowance
The Company provides such allowance due to uncertainty that some of the deferred
tax amounts may not be realized. Certain items, such as state and local tax loss
carry forwards, are dependent on future earnings or the availability of tax
strategies. Future results could require an increase or decrease in the
valuation allowance and a resulting adjustment to income in such period.
Accounting for Goodwill and Other Intangible Assets
20
During 2001, the FASB issued FAS 142, which requires that for the Company,
effective September 28, 2002, goodwill, including the goodwill included in the
carrying value of investments accounted for using the equity method of
accounting, and certain other intangible assets deemed to have an indefinite
useful life, cease amortizing. FAS 142 requires that goodwill and certain
intangible assets be assessed for impairment using fair value measurement
techniques. Specifically, goodwill impairment is determined using a two-step
process. The first step of the goodwill impairment test is used to identify
potential impairment by comparing the fair value of the reporting unit (the
Company is being treated as one reporting unit) with its net book value (or
carrying amount), including goodwill. If the fair value of the reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired and the second step of the impairment test is unnecessary. If the
carrying amount of the reporting unit exceeds its fair value, the second step of
the goodwill impairment test is performed to measure the amount of impairment
loss, if any. The second step of the goodwill impairment test compares the
implied fair value of the reporting unit's goodwill with the carrying amount of
that goodwill. If the carrying amount of the reporting unit's goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. The implied fair value of goodwill is determined in
the same manner as the amount of goodwill recognized in a business combination.
That is, the fair value of the reporting unit is allocated to all of the assets
and liabilities of that unit (including any unrecognized intangible assets) as
if the reporting unit had been acquired in a business combination and the fair
value of the reporting unit was the purchase price paid to acquire the reporting
unit. The impairment test for other intangible assets consists of a comparison
of the fair value of the intangible asset with its carrying value. If the
carrying value of the intangible asset exceeds its fair value, an impairment
loss is recognized in an amount equal to that excess.
Determining the fair value of the reporting unit under the first step of the
goodwill impairment test and determining the fair value of individual assets and
liabilities of the reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is judgmental in nature
and often involves the use of significant estimates and assumptions. Similarly,
estimates and assumptions are used in determining the fair value of other
intangible assets. These estimates and assumptions could have a significant
impact on whether or not an impairment charge is recognized and also the
magnitude of any such charge. To assist in the process of determining goodwill
impairment, the Company obtains appraisals from independent valuation firms. In
addition to the use of independent valuation firms, the Company performs
internal valuation analyses and considers other market information that is
publicly available. Estimates of fair value are primarily determined using
discounted cash flows and market comparisons and recent transactions. These
approaches use significant estimates and assumptions including projected future
cash flows (including timing), discount rate reflecting the risk inherent in
future cash flows, perpetual growth rate, determination of appropriate market
comparables and the determination of whether a premium or discount should be
applied to comparables. Based on the above policy, no impairment charge was
recorded upon adoption or during the fiscal years ended 2003 and 2004.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123
(R), "Accounting for Stock-Based Compensation." SFAS No. 123 (R) establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. This Statement focuses primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123 (R) requires that the fair value
of such equity instruments be recognized as expense in the historical financial
statements as services are performed. Prior to SFAS No. 123 (R), only certain
pro forma disclosures of fair value were required. SFAS No. 123 (R) shall be
effective for public entities that do not file as small business issuers as of
the beginning of the first interim or annual reporting period that begins after
June 15, 2005. The Company has not determined if the adoption of this new
accounting pronouncement is expected to have a material impact on the financial
statements of the Company for fiscal 2006.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
None.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements are included in this report
immediately following Part IV.
21
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Incorporated herein by this reference is the discussion under Item 4 of the
Company's Current Report on Form 8-K, filed on January 15, 2004, and Item 4 of
the Company's Current Report on Form 8-K/A, filed on January 16, 2004, reporting
a change in certifying accountants. There were no disagreements related to that
change in accountants.
Item 9A.
Controls and Procedures; Internal Control over Financial Reporting
Evaluation of disclosure controls and procedures. Based on their evaluation of
disclosure controls as of October 2, 2004, the Company's principal executive
officer and principal financial officer have concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are
effective as of October 2, 2004 to ensure that information required to be
disclosed by the Company in reports that the Company files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
Changes in internal control over financial reporting. There were no changes in
the Company's internal control over financial reporting during the fourth
quarter of fiscal year 2004 that materially affected or are reasonably likely to
materially affect the Company's internal control over financial reporting.
22
PART III
Item 10. Directors and Executive Officers of the Registrant
See Part I, Item 4. "Executive Officers of the Registrant." Other information
relating to the directors and executive officers of the Company is incorporated
by reference to the definitive proxy statement for the Company's 2005 annual
meeting of stockholders to be filed with the Securities and Exchange Commission
(the "SEC") pursuant to Regulation 14A no later than 120 days after the end of
the fiscal year covered by this form (the "Proxy Statement"). Information
relating to compliance with Section 16(a) of the Exchange Act is incorporated by
reference to the Proxy Statement.
Code of Ethics.
The Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions. The Company will provide
any person without charge, upon request, a copy of such code of ethics by
mailing the request to the Company at 85 Fifth Avenue, New York, NY 10003,
Attention: Robert Towers.
Audit Committee Financial Expert
The Company's Board of Directors has determined that Marcia Allen, Director, is
the Company's Audit Committee Financial Expert, as defined under Section 407 of
the Sarbanes-Oxley Act of 2002 and the rules promulgated by the SEC in
furtherance of Section 407. Ms. Allen is independent of management. Other
information regarding the Audit Committee is incorporated by reference from the
Proxy Statement.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the Proxy
Statement.
23
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements: Page
---------
Reports of Independent Registered Public Accounting Firms F-1 - F-2
Consolidated Balance Sheets --
at October 2, 2004 and September 27, 2003 F-3
Consolidated Statements of Operations -- For each of the
three fiscal years ended October 2, 2004, September 27,
2003 and September 28, 2002 F-4
Consolidated Statements of Cash Flows -- For each of the
three fiscal years ended October 2, 2004, September 27,
2003 and September 28, 2002 F-5
Consolidated Statements of Shareholders' Equity -- For
each of the three fiscal years ended October 2, 2004,
September 27, 2003 and September 28, 2002 F-6
Notes to Consolidated Financial Statements F-7
(2) Financial Statement Schedules
None
(3) Exhibits:
3.1 Certificate of Incorporation of the Registrant, filed with the
Secretary of State of the State of New York on January 4, 1983,
incorporated by reference to Exhibit 3.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 28, 2002
("2002 10-K").
3.2 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of New York
on October 11, 1985, incorporated by reference to Exhibit 3.2 to the
2002 10-K.
3.3 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of New York
on July 21, 1988, incorporated by reference to Exhibit 3.3 to the 2002
10-K.
3.4 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of New York
on May 13, 1997, incorporated by reference to Exhibit 3.4 to the 2002
10-K.
3.5 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed on April 24, 2002 incorporated by reference to
Exhibit 3.5 to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 30, 2002 (the "Second Quarter 2002 Form
10-Q").
24
3.6 By-Laws of the Registrant, incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-18 filed with the
Securities and Exchange Commission on October 17, 1985.
10.1 Amended and Restated Redemption Agreement dated June 29, 1993 between
the Registrant and Michael Weinstein, incorporated by reference to
Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 2, 1994 ("1994 10-K").
10.2 Form of Indemnification Agreement entered into between the Registrant
and each of Michael Weinstein, Ernest Bogen, Vincent Pascal, Robert
Towers, Jay Galin, Robert Stewart, Bruce R. Lewin, Paul Gordon and
Donald D. Shack, incorporated by reference to Exhibit 10.2 to the 1994
10-K.
10.3 Ark Restaurants Corp. Amended Stock Option Plan, incorporated by
reference to Exhibit 10.3 to the 1994 10-K.
10.4 Fourth Amended and Restated Credit Agreement dated as of December 27,
1999 between the Company and Bank Leumi USA, incorporated by reference
to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 2, 1999.
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, as amended, incorporated
by reference to the Registrant's Definitive Proxy Statement pursuant
to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No.
1) filed on March 16, 2001.
10.6 Lease Agreement dated May 17, 1996 between New York-New York Hotel,
LLC, and Las Vegas America Corp., incorporated by reference to Exhibit
10.6 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended October 3, 1998 (the "1998 10-K").
10.7 Lease Agreement dated May 17, 1996 between New York-New York Hotel,
LLC, and Las Vegas Festival Food Corp., incorporated by reference to
Exhibit 10.7 to the 1998 10-K.
10.8 Lease Agreement dated May 17, 1996 between New York-New York Hotel,
LLC, and Las Vegas Steakhouse Corp., incorporated by reference to
Exhibit 10.8 to the 1998 10-K.
10.9 Amendment dated August 21, 2000 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 2000 (the "2000 10-K").
10.10 Amendment dated November 21, 2000 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.10 to the 2000
10-K.
10.11 Amendment dated November 1, 2001 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 29, 2001 (the "2001 10-K").
10.12 Amendment dated December 20, 2001 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.11 of the 2001
10-K.
10.13 Amendment dated as of April 23, 2002 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999 between the
Company and Bank Leumi USA, incorporated by reference to Exhibit 10.13
of the Second Quarter 2002 Form 10-Q.
25
10.14 Amendment dated as of January 22, 2002 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999 between the
Company and Bank Leumi USA, incorporated by reference to Exhibit 10.14
of the First Quarter 2003 Form 10-Q.
14 Code of Ethics, incorporated by reference to Exhibit 14.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 27, 2003.
16 Letter from Deloitte & Touche LLP regarding change in certifying
accountants, incorporated by reference from the exhibit included with
the Company's Current Report on Form 8-K filed with the SEC on January
15, 2004 and the Company's Current Report on Form 8-K/A filed with the
SEC on January 16, 2004.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of J.H. Cohn LLP.
*31.1 Certification of Chief Executive Officer pursuant to Section 302(a)
of the Sarbanes-Oxley Act of 2002.
*31.2 Certification of Chief Financial Officer pursuant to Section 302(a)
of the Sarbanes-Oxley Act of 2002.
*32 Section 1350 Certification
(b) Reports on Form 8-K
Report on Form 8-K dated January 15, 2004
Report on Form 8-K/A dated January 16, 2004
Report on Form 8-K dated February 10, 2004
Report on Form 8-K dated May 11, 2004
Report on Form 8-K dated August 11, 2004
Report on Form 8-K dated October 15, 2004
- ----------
* Filed herewith.
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheet of Ark Restaurants
Corp. and Subsidiaries as of October 2, 2004, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ark
Restaurants Corp. and Subsidiaries as of October 2, 2004, and their consolidated
results of operations and cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ J.H. Cohn LLP
- -----------------------------
New York, New York
December 27, 2004
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheet of Ark Restaurants
Corp. and subsidiaries (the "Company") as of September 27, 2003, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two fiscal years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ark Restaurants Corp. and
subsidiaries as of September 27, 2003, and the results of their operations and
their cash flows for each of the two fiscal years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte and Touche LLP
- ----------------------------------
New York, New York
December 24, 2003
(December 30, 2004 as to the reclassifications described in the final paragraph
of Note 2)
F-2
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
- --------------------------------------------------------------------------------
October 2, September 27,
2004 2003
---------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,435 $ 486
Accounts receivable 2,171 1,677
Employee receivables 330 255
Current portion of long-term receivables (Note 3) 208 193
Inventories 1,731 1,997
Deferred income taxes (Note 12) -- 281
Prepaid expenses and other current assets 1,615 886
Assets held for sale (Note 2) 128 --
------- -------
Total current assets 10,618 5,775
------- -------
LONG-TERM RECEIVABLES (Note 3)
1,082 1,291
------- ------
FIXED ASSETS--At cost:
Leasehold improvements 29,720 34,385
Furniture, fixtures and equipment 27,178 29,427
------- -------
56,898 63,812
Less accumulated depreciation and amortization 33,437 36,748
------- -------
23,461 27,064
------- -------
INTANGIBLE ASSETS--Net (Note 4) 224 473
GOODWILL 3,515 3,515
DEFERRED INCOME TAXES (Note 12) 5,221 4,622
OTHER ASSETS (Note 5) 773 895
------- -------
TOTAL $44,894 $43,635
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade $ 2,230 $ 3,443
Accrued expenses and other current liabilities (Note 6) 4,781 5,586
Current maturities of long-term debt (Note 7) 251 350
Accrued income taxes 2,093 1,198
------- -------
Total current liabilities 9,355 10,577
LONG TERM DEBT - Net of current maturities (Note 7) -- 7,226
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8) 899 1,006
LIABILITIES HELD FOR DISPOSITION (Note 2) 440 --
------- -------
TOTAL LIABILITIES 10,694 18,809
------- -------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Notes 7, 9, 10 and 16):
Common stock, par value $.01 per share -- authorized, 10,000
shares; issued and outstanding 5,462 and 5,249 at October 2, 2004
and September 27, 2003, respectively 54 52
Additional paid-in capital 17,202 14,743
Retained earnings 25,694 19,037
------- -------
42,950 33,832
Less stock options receivable 364 655
Less treasury stock of 2,070 and 2,068 shares at October 2, 2004
and September 27, 2003, respectively 8,386 8,351
------- -------
Total shareholders' equity 34,200 24,826
------- -------
TOTAL $44,894 $43,635
======= =======
See notes to consolidated financial statements.
F-3
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
- --------------------------------------------------------------------------------
Years Ended
------------------------------------------
October 2, September 27, September 28,
2004 2003 2002
--------- ------------- -------------
REVENUES:
Food and beverage sales $114,848 $102,054 $101,151
Other income 850 679 474
-------- -------- --------
Total revenues 115,698 102,733 101,625
-------- -------- --------
COST AND EXPENSES:
Food and beverage cost of sales 29,554 25,392 24,863
Payroll expenses 36,045 33,176 32,084
Occupancy expenses 15,900 15,525 14,890
Other operating costs and expenses 14,492 12,312 12,109
General and administrative expenses 6,499 6,665 6,548
Depreciation and amortization 3,591 3,910 4,659
-------- -------- --------
Total cost and expenses 106,081 96,980 95,153
-------- -------- --------
OPERATING INCOME 9,617 5,753 6,472
-------- -------- --------
OTHER (INCOME) EXPENSE:
Interest expense (Note 7) 190 732 1,201
Interest income (138) (162) (133)
Other income (Note 13) (595) (973) (461)
-------- -------- --------
(543) (403) 607
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 10,160 6,156 5,865
PROVISION FOR INCOME TAXES (Note 12) 2,804 1,486 1,474
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS 7,356 4,670 4,391
-------- -------- --------
DISCONTINUED OPERATIONS:
LOSS FROM OPERATIONS OF DISCONTINUED RESTAURANTS
(INCLUDING NET LOSSES ON DISPOSAL OF $168,000 FOR THE
YEAR ENDED OCTOBER 2, 2004) (Note 2) (965) (1,781) (217)
BENEFIT FOR INCOME TAXES (Note 12) (266) (430) (55)
-------- -------- --------
LOSS FROM DISCONTINUED OPERATIONS (699) (1,351) $ (162)
-------- -------- --------
NET INCOME
$ 6,657 $ 3,319 $ 4,229
======== ======== ========
PER SHARE INFORMATION -- BASIC AND DILUTED
Continuing operations basic $ 2.22 $ 1.46 $ 1.38
Discontinued operations basic $ (0.21) $ (0.42) $ (0.05)
-------- -------- --------
NET BASIC $ 2.01 $ 1.04 $ 1.33
======== ======== ========
Continuing operations diluted $ 2.13 $ 1.45 $ 1.37
Discontinued operations diluted $ (0.20) $ (0.42) $ (0.05)
-------- -------- --------
NET DILUTED $ 1.93 $ 1.03 $ 1.32
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES -- Basic 3,305 3,181 3,181
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES -- Diluted 3,444 3,213 3,206
======== ======== ========
See notes to consolidated financial statements.
F-4
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
Years Ended
------------------------------------------
October 2, September 27, September 28,
2004 2003 2002
---------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 7,356 $ 4,670 $ 4,391
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities:
Deferred income taxes 318 (355) 1,786
Depreciation and amortization 3,591 3,910 4,659
Operating lease deferred credit 53 4 (16)
Changes in operating assets and liabilities
Receivables (514) 288 (521)
Employee receivables (75) 790 (257)
Inventories 133 (65) 181
Prepaid expenses and other current assets (1,025) 18 49
Prepaid income taxes -- 957 162
Other assets 208 (314) (380)
Accounts payable -- trade (1,213) 111 (900)
Accrued income taxes 895 1,198 --
Accrued expenses and other current liabilities (805) (770) (388)
------- ------- -------
Net cash provided by operating activities 8,922 10,442 8,766
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (1,529) (1,603) (704)
Issuance of demand notes and long-term receivables - -- (125)
Payments received on note receivables 193 169 282
------- ------- -------
Net cash (used in) provided by investing activities (1,336) (1,434) (547)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- 1,100 1,500
Principal payment on long-term debt (7,328) (9,355) (9,616)
Exercise of stock options 1,966 -- --
Payment received under stock options receivables 291 61 44
Payment of debt issuance costs -- (162) --
Purchase of treasury stock (35) -- --
------- ------- -------
Net cash used in financing activities (5,106) (8,356) (8,072)
------- ------- -------
NET CASH PROVIDED BY CONTINUING OPERATIONS 2,480 652 147
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 1,469 (985) 672
------- ------- -------
NET INCREASE (DECREASE) IN CASH -- AND CASH EQUIVALENTS 3,949 (333) 819
CASH AND CASH EQUIVALENTS -- Beginning of year 486 819 --
------- ------- -------
CASH AND CASH EQUIVALENTS -- End of year $ 4,435 $ 486 $ 819
======= ======= =======
SUPPLEMENTAL INFORMATION:
Cash payments for:
Interest $ 264 $ 768 $ 1,271
======= ======= =======
Income taxes $ 1,455 $ 114 $ 187
======= ======= =======
See notes to consolidated financial statements.
F-5
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED October 2, 2004, SEPTEMBER 27, 2003 AND SEPTEMBER 28, 2002
(In thousands)
- --------------------------------------------------------------------------------
Common Stock Additional Stock Total
--------------- Paid-In Retained Treasury Options Shareholders'
Shares Amount Capital Earnings Stock Receivable Equity
------ ------ ---------- -------- -------- ---------- -------------
BALANCE, September 29, 2001 5,249 $52 $14,743 $11,489 $(8,351) $(760) $17,173
Purchase of treasury stock -- -- -- -- -- 44 44
Net income -- -- -- 4,229 -- -- 4,229
----- --- ------- ------- ------- ----- -------
BALANCE--September 28, 2002 5,249 52 14,743 15,718 (8,351) (716) 21,446
Net payment on stock options receivables -- -- -- -- -- 61 61
Net income -- -- -- 3,319 -- -- 3,319
----- --- ------- ------- ------- ----- -------
BALANCE--September 27, 2003 5,249 52 14,743 19,037 (8,351) (655) 24,826
Exercise of stock options 213 2 1,964 -- -- -- 1,966
Tax benefit on exercise of options -- -- 495 -- -- -- 495
Purchase of treasury stock -- -- -- -- (35) -- (35)
Payment on stock options receivables -- -- -- -- -- 291 291
Net income -- -- -- 6,657 -- -- 6,657
----- --- ------- ------- ------- ----- -------
BALANCE--October 2, 2004 5,462 $54 $17,202 $25,694 $(8,386) $(364) $34,200
===== === ======= ======= ======= ===== =======
See notes to consolidated financial statements.
F-6
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 2, 2004, SEPTEMBER 27, 2003 AND SEPTEMBER 28, 2002
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the "Company") own and operate 22
restaurants, 26 fast food concepts, catering operations and wholesale and
retail bakeries. Nine restaurants are located in New York City, nine in Las
Vegas, Nevada and four in Washington, D.C. The Las Vegas operations include
three restaurants within the New York-New York Hotel & Casino Resort and
operation of the resort's room service, banquet facilities, employee dining
room and nine food court concepts. Four restaurants and bars are within the
Venetian Casino Resort as well as four food court concepts; one restaurant
is within the Forum Shops at Caesar's Shopping Center and one restaurant is
in downtown Las Vegas at the Neonopolis Center. The Company also manages
five fast food facilities in Tampa, Florida and eight fast food facilities
in Hollywood, Florida, each at a Hard Rock Hotel and Casino owned by the
Seminole Indian Tribe at these locations.
Accounting Period -- The Company's fiscal year ends on the Saturday nearest
September 30. The fiscal year ended October 2, 2004 included 53 weeks. The
fiscal years ended September 27, 2003, and September 28, 2002, included 52
weeks.
Significant Estimates -- In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value
of certain assets and liabilities which are not readily apparent from other
sources. The primary estimates underlying the Company's financial
statements include allowances for potential bad debts on long-term
receivables, the useful lives and recoverability of its assets, such as
property and intangibles, fair values of financial instruments, the
realizable value of its tax assets and other matters. Management bases its
estimates on certain assumptions, which they believe are reasonable in the
circumstances, and while actual results could differ from those estimates,
management does not believe that any change in those assumptions in the
near term would have a material effect on the Company's consolidated
financial statements.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash Equivalents -- Cash equivalents include instruments with original
maturities of three months or less.
Accounts Receivable -- Accounts receivable is primarily composed of normal
business receivables such as credit card receivables that are paid off in a
short period of time. See Notes 16 and 17 for a discussion of related party
receivables.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out) or market, and consist of food and beverages, merchandise for
sale and other supplies.
F-7
Fixed Assets -- Leasehold improvements and furniture, fixtures and
equipment are stated at cost. Depreciation of furniture, fixtures and
equipment (including equipment under capital leases) is computed using the
straight-line method over the estimated useful lives of the respective
assets (three to seven years). Amortization of improvements to leased
properties is computed using the straight-line method based upon the
initial term of the applicable lease or the estimated useful life of the
improvements, whichever is less, and ranges from 5 to 35 years.
The Company includes in leasehold improvements in progress restaurants that
are under construction. Once the projects have been completed the Company
will begin amortizing the assets. Start-up costs incurred during the
construction period of restaurants, including rental of premises, training
and payroll, are expensed as incurred.
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the asset's carrying amount. In the evaluation of the fair value and
future benefits of long-lived assets, the Company performs an analysis of
the anticipated undiscounted future net cash flows of the related
long-lived assets. If the carrying value of the related asset exceeds the
undiscounted cash flows, the carrying value is reduced to its fair value.
Various factors including future sales growth and profit margins are
included in this analysis. Management believes at this time that carrying
values and useful lives continue to be appropriate.
For the years ended October 2, 2004 and September 28, 2002, no impairment
charges were deemed necessary. For the year ended September 27, 2003, an
impairment charge of $667,000 was incurred on the restaurant Lutece (Note
2).
Intangible Assets and Goodwill -- As of September 29, 2002, the Company
adopted the provisions for SFAS No. 142, Accounting for Goodwill and Other
Intangible Assets, This statement requires that goodwill and intangible
assets with indefinite lives no longer be amortized, but instead be tested
for impairment at least annually and written down with a charge to
operations when the carrying amount exceeds the estimated fair value. Prior
to the adoption of SFAS No. 142, the Company amortized goodwill. The amount
of such amortized goodwill was $3,515,000 as of September 28, 2002. In
accordance with SFAS No. 142 the Company discontinued the amortization of
goodwill effective September 29, 2002. Had the provisions of SFAS No. 142
been in effect during the year ended September 28, 2002 a reduction of
amortization expense in pretax income of $364,000 or an increase of $0.11
in basic and diluted earnings per share would have been recorded. The
Company has completed its annual impairment analysis as of October 2, 2004
and has determined that there is no impairment of goodwill.
Costs associated with acquiring leases and subleases, principally purchased
leasehold rights, have been capitalized and are being amortized on the
straight-line method based upon the initial terms of the applicable lease
agreements, which range from 10 to 21 years.
Covenants not to compete arising from restaurant acquisitions are amortized
over the contractual period of five years.
Amortization expense for intangible assets not including goodwill was
$27,000, $15,000 and $39,000 for the years ended October 2, 2004, September
27, 2003, and September 28, 2002, respectively.
F-8
Other Assets -- Certain legal and bank commitment fees incurred in
connection with the Company's Revolving Credit and Term Loan Facility, as
discussed in Note 7, were capitalized as deferred financing fees and are
being amortized over two years, the remaining term of the facility.
Operating Lease Deferred Credit -- Several of the Company's operating
leases contain predetermined increases in the rentals payable during the
term of such leases. For these leases, the aggregate rental expense over
the lease term is recognized on a straight-line basis over the lease
term. The excess of the expense charged to operations in any year and
amounts payable under the leases during that year are recorded as a
deferred credit. The deferred credit subsequently reverses over the lease
term (Note 8).
Occupancy Expenses -- Occupancy expenses include rent, rent taxes, real
estate taxes, insurance and utility costs.
Income Taxes -- Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for
future tax consequences attributable to the temporary differences between
the financial statement carrying amounts of assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that
includes the enactment date. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Income Per Share of Common Stock -- Basic net income per share is computed
in accordance with Statement of Financial Accounting Standard ("SFAS")
No. 128, Earnings Per Share, and is calculated on the basis of the weighted
average number of common shares outstanding during each period. Dilutive
net income per share reflects the additional dilutive effect of potentially
dilutive shares (principally those arising from the assumed exercise of
stock options).
Stock Options -- The Company accounts for its stock options granted to
employees under the intrinsic value-based method for employee stock-based
compensation and provides pro forma disclosure of net income and earnings
per share as if the accounting provision of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123") had been adopted. The Company generally does not grant
options to outsiders.
SFAS No. 123 requires the Company to disclose pro forma net income and pro
forma earnings per share information for employee stock option grants to
employees as if the fair-value method defined in SFAS No. 123 had been
applied. The Company utilized the Black-Scholes option-pricing model to
quantify the pro forma effects on net income and earnings per share of all
options granted. There were no options granted during fiscal 2004 and 2003
and no charges to operations for options issued to employees during fiscal
2004, 2003 and 2002.
In accordance with Statement of Financial Accounting Standards No. 148
("SFAS No. 148") and SFAS 123, the Company's pro forma option expense is
computed using Black-Scholes option pricing model. To comply with SFAS 148,
the Company is presenting the following table to illustrate the effect on
the net income and income per share if it had applied the fair value
recognition provisions of SFAS 123, as amended, to options granted under
the stock-based employee compensation plan. For purposes of this pro forma
disclosure, the estimated value of the options is amortized ratably to
expense over the options' vesting periods.
F-9
The pro forma impact was as follows:
Years Ended
------------------------------------------
October 2, September 27, September 28,
2004 2003 2002
---------- ------------- -------------
(In thousands, except per share amounts)
Net income as reported $6,657 $3,319 $4,229
Deduct stock based compensation expense
computed under the fair value method 85 118 141
------ ------ ------
Net income -- pro forma $6,572 $3,201 $4,088
====== ====== ======
Net income per share as reported -- basic $ 2.01 $ 1.04 $ 1.33
Net income per share as reported -- diluted $ 1.93 $ 1.03 $ 1.32
Net income per share pro forma -- basic $ 1.99 $ 1.01 $ 1.29
Net income per share pro forma -- diluted $ 1.91 $ 1.00 $ 1.27
The weighted-average assumptions which were used for options granted in
fiscal 2002 included a risk free interest rate of 4.25% and volatility of
35%. An expected life of four years was used. No annual dividend yield was
assumed. The weighted average grant date fair value of options granted and
outstanding during fiscal 2002 was $2.05.
Reclassifications -- Certain reclassifications of prior year balances have
been made to conform with current year presentation.
2. RECENT RESTAURANT DISPOSITIONS
In fiscal 2003, the Company determined that its restaurant, Lutece, located
in New York City, had been impaired by the events of September 11th and the
continued weakness in the economy. Based upon the sum of the future
undiscounted cash flows related to the Company's long-lived fixed assets at
Lutece, the Company determined that impairment had occurred. To estimate
the fair value of such long-lived fixed assets, for determining the
impairment amount, the Company used the expected present value of the
future cash flows. The Company projected continuing negative operating cash
flow for the foreseeable future with no value for subletting or assigning
the lease for the premises. As a result, the Company determined that there
was no value to the long-lived fixed assets. The Company had an investment
of $667,000 in leasehold improvements, furniture fixtures and equipment.
The Company believed that these assets would have nominal value upon
disposal and recorded an impairment charge of $667,000 during fiscal 2003.
Due to continued weak sales, the Company closed Lutece during the second
quarter of 2004. The Company recorded net operating losses of $804,000 for
Lutece during the fiscal year ended October 2, 2004 which are included in
losses from discontinued operations. In 2004 the Company also incurred a
one-time charge of $470,000 related to pension plan contributions required
in connection with the closing of Lutece which is payable monthly over a
nine year period beginning May 17, 2004 and bears interest at a rate of 8%
per annum.
On December 1, 2003, the Company sold a restaurant, Lorelei, for
approximately $850,000. The book value of inventory, fixed assets,
intangible assets and goodwill related to this entity was approximately
$625,000. The Company recorded a gain on the sale of approximately $225,000
during the first quarter
F-10
of fiscal 2004 which is included in losses from discontinued operations.
Net operating losses of $145,000 were recorded in discontinued operations
in fiscal 2004. There were no additional expenses related to this
restaurant during the fiscal year ended October 2, 2004.
The Company's restaurant Ernie's, located on the upper west side of
Manhattan opened in 1982. As a result of a steady decline in sales, the
Company felt that a new concept was needed at this location. The restaurant
was closed June 16, 2003 and reopened in August 2003. Total conversion
costs were approximately $350,000. Sales at the new restaurant, La Rambla,
failed to reach the level sufficient to achieve the results the Company
required. As a result, the Company sold this restaurant on January 1, 2004
and realized a gain on the sale of this restaurant of approximately
$214,000. Net operating losses of $230,000 were included in losses from
discontinued operations for the fiscal year ended October 2, 2004.
The Company's restaurant Jack Rose located on the west side of
Manhattan has experienced weak sales for several years. In addition, this
restaurant did not fit the Company's desired profile of being in a landmark
destination location. As a result, the Company sold this restaurant on
February 23, 2004. The Company realized a loss on the sale of this
restaurant of $137,000 which was recorded during the second quarter of
fiscal 2004. The Company recorded net operating losses of $148,000 during
fiscal 2004 for this restaurant. These losses are included in losses from
discontinued operations.
The Company's restaurant America, located in New York City, has
experienced declining sales for several years. In March 2004, the Company
entered into a new lease for this restaurant at a significantly increased
rent. The Company entered into this lease with the belief that due to the
location and the uniqueness of the space the lease had value. During fiscal
2004 the Company identified a buyer for this restaurant and is currently
completing negotiations for its sale. The carrying amount of the net assets
held for sale was approximately $128,000 as of October 2, 2004. Net income
of $60,000 has been included in losses from discontinued operations for
fiscal 2004. The Company expects the sale of this restaurant to be
completed during the second quarter of fiscal 2005.
In accordance with SFAS No. 144, all prior years included in the
accompanying consolidated statements of operations and cash flows have been
reclassified to separately show the results of operations and cash flows of
these discontinued operations. Total revenues of these discontinued
operations were $6,501,000, $13,860,000 and $14,968,000 in fiscal 2004,
2003 and 2002, respectively.
F-11
3. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
October 2, September 27,
2004 2003
---------- -------------
(In thousands)
Note receivable collateralized by fixed assets and lease at a
restaurant sold by the Company, at 8% interest; due in
monthly installments through December 2006 (a) $ 192 $ 268
Note receivable colleteralized by fixed assets and lease at a
restaurant sold by the Company, at 7.5% interest; due in
monthly installments through December 2008 (b) 1,009 1,104
Note receivable collateralized by fixed assets and lease at a
restaurant at 7.0% interest; due in monthly installments
through December 2007 (c) 89 112
------ ------
1,290 1,484
Less current portion 208 193
------ ------
$1,082 $1,291
====== ======
(a) In December 1996, the Company sold a restaurant for $900,000. Cash of
$50,000 was received on sale and the balance is due in installments
through December 2006.
(b) In October 1997, the Company sold a restaurant for $1,750,000, of
which $200,000 was paid in cash and the balance is due in monthly
installments under the terms of two notes bearing interest at a rate
of 7.5%. One note, with an initial principal balance of $400,000, was
paid in 24 monthly installments of $19,000 through April 2000. The
second note, with an initial principal balance of $1,150,000, will be
paid in 104 monthly installments of $15,000 commencing May 2000 and
ending December 2008. At December 2008, the then outstanding balance
of $519,000 matures.
The Company recognized a gain of approximately $585,000 in the fiscal
year ended September 27, 2003 in connection with the sale of this
restaurant. The gain recognized reflected the realization of a gain
that had been deferred originally due to the length of the note and
the substantial balance due upon maturity ($519,000). A review of the
performance of this note and the security underlying it has lead
management to conclude that the full amount will likely be collected
and, accordingly, the note no longer requires a reserve. Consequently,
the Company eliminated this reserve and included the amount in
revenue, in other income, for the year ended September 27, 2003. As a
result of the reclassification of discontinued operations this gain is
included in losses from discontinued operations for fiscal 2003.
(c) In June 2000, the Company sold this restaurant for $438,000. Cash of
$188,000 was received on sale and the balance was due in installments
through June 2006. In February 2001, the buyer defaulted and the
Company took possession of this restaurant and sold it to another
party in June 2002. The total price was $270,000, cash of $145,000 was
received on sale and the balance is due in installments through
December 2007.
F-12
The Company recognized a gain during the year ended September 28, 2002
of $105,000, the net of funds received from the buyer and the
outstanding $165,000 note which was written down on the default.
The carrying value of the Company's long-term receivables approximates
their current aggregate fair value.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
October 2, September 27,
2004 2003
---------- -------------
(In thousands)
Purchased leasehold rights (a) $ 611 $ 751
Noncompete agreements and other 600 926
------ ------
1,211 1,677
Less accumulated amortization 987 1,204
------ ------
Total intangible assets $ 224 $ 473
====== ======
(a) Purchased leasehold rights arise from acquiring leases and subleases
of various restaurants.
5. OTHER ASSETS
Other assets consist of the following:
October 2, September 27,
2004 2003
---------- -------------
(In thousands)
Deposits and other $350 $378
Deferred financing fees 27 117
Landlord receivable (a) 396 400
---- ----
$773 $895
==== ====
(a) This balance represents certain costs paid by the Company on behalf of
a landlord, that under an agreement with the landlord will be used as
a future offset to contingent rent payments for certain Las Vegas
restaurants.
F-13
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
October 2, September 27,
2004 2003
---------- -------------
(In thousands)
Sales tax payable $ 833 $ 737
Accrued wages and payroll related costs 1,430 1,390
Customer advance deposits 853 815
Accrued and other liabilities 1,169 1,770
Abandonment accrual (a) 496 874
------ ------
$4,781 $5,586
====== ======
(a) During the year ended September 29, 2001, the Company recorded the
entire amount payable under an operating lease for restaurant
equipment for the Aladdin operations as a liability of $1,600,000
based on their anticipated abandonment. During the year ended
September 28, 2002, the operations at the Aladdin were abandoned (see
Note 2).
7. NOTES PAYABLE AND CREDIT FACILITY
The Company's debt consists of the following:
October 2, September 27,
2004 2003
---------- -------------
(In thousands)
Notes issued in connection with refinancing of restaurant equipment, with
interest at 8.80%, payable in monthly
installments through May 2005 (a) $251 $ 601
Revolving Credit and Term Loan Facility with interest at the
prime rate, plus 1/2%, due February 16, 2005 (b) -- 6,975
---- ------
251 7,576
Less current maturities 251 350
---- ------
$ -- $7,226
==== ======
(a) In April 2000, the Company borrowed from its main bank $1,570,000 to
refinance the purchase of various restaurant equipment at its food and
beverage facilities in a hotel and casino in Las Vegas, Nevada. The
notes bear interest at 8.80% per annum and are payable in 60 equal
monthly installments of $32,439 inclusive of interest, until maturity
in May 2005.
F-14
(b) As of October 2, 2004, the Company's Revolving Credit and Term Loan
Facility (the "Facility") with its main bank (Bank Leumi USA),
included a $8,500,000 credit line to finance the development and
construction of new restaurants and for working capital purposes at
the Company's existing restaurants. The credit line has a maturity
date of February 12, 2005. The Company had no borrowings outstanding
on the Facility at October 2, 2004. Borrowings on the Facility bear
interest at 1/2% above the bank's prime rate. The Facility also
includes a $500,000 letter of credit facility for use in lieu of lease
security deposits. The Company had delivered $354,000 in irrevocable
letters of credit on this Facility. The Company generally is required
to pay commissions of 1 1/2% per annum on outstanding letters of
credit.
The Company's subsidiaries each guaranteed the obligations of the
Company under the foregoing Facility and granted security interests in
their respective assets as collateral for such guarantees. In
addition, the Company pledged stock of such subsidiaries as security
for obligations of the Company under such Facility.
The Facility includes restrictions relating to, among other things,
indebtedness for borrowed money, capital expenditures, mergers, sale
of assets, dividends and liens on the property of the Company. The
Facility also requires the Company to comply with certain financial
covenants at the end of each quarter such as minimum cash flow in
relation to the Company's debt service requirements, ratio of debt to
equity, and the maintenance of minimum shareholders' equity. In
December 2001 and April 2002, certain covenants in the Facility were
modified for fiscal 2002 and beyond. The Company violated a covenant
related to a limitation on cash flow during the quarter ended October
2, 2004. The Company received a waiver through December 31, 2004 from
Bank Leumi USA for the covenant with which it was not in compliance.
The Company has historically received waivers for any covenant
violation.
In September 2001, a subsidiary of the Company entered into a lease
agreement with World Entertainment Centers LLC regarding the leasing
of premises at the Neonopolis Center at Freemont Street in Las Vegas,
Nevada for the restaurant Saloon. The Company provided a lease
guaranty ("Guaranty") to induce the landlord to enter into the lease
agreement. The Guaranty was for a term of two years from the date of
the opening of the Saloon, May 2002, and during the first year of the
Guaranty was in the amount of $350,000. Upon the first anniversary of
the opening of the Saloon, May 2003, the Guaranty was reduced to
$175,000 and expired in May 2004.
8. COMMITMENTS AND CONTINGENCIES
Leases--The Company leases its restaurants, bar facilities, and
administrative headquarters through its subsidiaries under terms expiring
at various dates through 2025. Most of the leases provide for the payment
of base rents plus real estate taxes, insurance and other expenses and, in
certain instances, for the payment of a percentage of the restaurants'
sales in excess of stipulated amounts at such facility.
As of October 2, 2004, future minimum lease payments, net of sublease
rentals, under noncancelable leases are as follows:
F-15
Amount
Fiscal Year (In thousands)
----------- --------------
2005 $ 7,356
2006 7,451
2007 4,622
2008 3,342
2009 2,856
Thereafter 9,907
-------
Total minimum payments $35,534
=======
In connection with the leases included in the table above, the Company
obtained and delivered irrevocable letters of credit in the aggregate
amount of $354,000 as security deposits under such leases.
Rent expense was $12,104,000, $11,027,000 and $10,737,000 during the fiscal
years ended October 2, 2004, September 27, 2003 and September 28, 2002,
respectively. Contingent rentals, included in rent expense, were
$4,153,000, $3,366,000 and $3,198,000 for the fiscal years ended October 2,
2004, September 27, 2003 and September 28, 2002, respectively.
In August 2004, the Company entered into a lease agreement to operate a
Gallagher's Steakhouse and separate bar, yet to be named, at the Resorts
International Hotel and Casino in Atlantic City, New Jersey. The landlord
has agreed to contribute up to $3,000,000 towards the construction of these
facilities which the Company believes will be sufficient to complete
construction. The restaurant and bar are scheduled to open in July 2005.
The future minimum lease payments from these lease agreements are included
in the above schedule.
Legal Proceedings--In the ordinary course of its business, the Company is a
party to various lawsuits arising from accidents at its restaurants and
worker's compensation claims, which are generally handled by the Company's
insurance carriers.
The employment by the Company of management personnel, waiters, waitresses
and kitchen staff at a number of different restaurants has resulted in the
institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe
that any of such suits will have a materially adverse effect upon the
Company's consolidated financial statements or operations.
Several unfair labor practice charges were filed against the Company in
1997 with the National Labor Relations Board (NLRB) with respect to the
Company's Las Vegas subsidiary. The charges were heard in October 1997. At
issue was whether the Company unlawfully terminated nine employees and
disciplined six other employees allegedly in retaliation for their union
activities. An Administrative Law Judge (ALJ) found that six employees were
terminated unlawfully, three were discharged for valid reasons, four
employees were disciplined lawfully and two employees were disciplined
unlawfully. On appeal, the NLRB found that the Company lawfully disciplined
five employees, and unlawfully disciplined one employee. The Company
appealed the adverse rulings of the NLRB to the D.C. Circuit Court of
Appeals. In July 2003, the D.C. Circuit Court of Appeals affirmed the
determinations of the NLRB. The Company offered to reinstate the employees
during fiscal 2004 and they refused. The Company incurred no liability as a
result.
F-16
9. COMMON STOCK REPURCHASE PLAN
In August 1998, the Company authorized the repurchase of up to 500,000
shares of the Company's outstanding common stock. In April 1999, the
Company authorized the repurchase of an additional 300,000 shares of the
Company's outstanding common stock. For the year ended October 2, 2004 the
Company repurchased 2,500 shares at a total cost of $35,000. For the years
ended September 27, 2003 and September 28, 2002, there were no repurchases
of common stock.
10. STOCK OPTIONS
The Company has a Stock Option Plan (the "Plan") pursuant to which the
Company reserved for issuance an aggregate of 1,098,000 shares of common
stock. Options granted under the Plan to key employees are exercisable at
prices at least equal to the fair market value of such stock on the dates
the options were granted. The options expire five years after the date of
grant and are generally exercisable as to 25% of the shares commencing on
the first anniversary of the date of grant and as to an additional 25%
commencing on each of the second, third and fourth anniversaries of the
date of grant.
Additional information follows:
2004 2003 2002
----------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ -------- ------------- -------- ------------- ---------
Outstanding, beginning of year 392,500 $ 7.91 392,500 $7.91 330,000 $10.72
Options:
Granted -- -- 240,000 6.30
Exercised (212,500) 9.18 -- --
Canceled or expired (2,000) 10.00 -- (177,500) 10.24
------------ ------------- -------------
Outstanding, end of year (a) 178,000 6.30 392,500 7.91 392,500 7.91
============ ============= =============
Exercise price, outstanding options $6.30 - 7.50 $6.30 - 10.00 $6.30 - 10.00
Weighted average years 2.14 Years 2.06 Years 3.06 Years
Shares available for future grant 371,000 371,000 371,000
Options exercisable (a) 60,500 6.30 220,000 9.10 168,000 10.00
(a) Options become exercisable at various times until expiration dates
ranging from December 2003 through December 2006.
11. MANAGEMENT FEE INCOME
As of October 2, 2004, the Company provides management services to two fast
food courts and one restaurant it does not own. In accordance with the
contractual arrangements, the Company earns management fees based on
operating profits as defined by the agreement.
Management fee income relating to these services was $386,000, $120,000 and
$30,000 for the years ended October 2, 2004, September 27, 2003 and
September 28, 2002, respectively.
F-17
Restaurants managed had sales of $9,566,000, $2,765,000 and $2,973,000
during the management periods within the years ended October 2, 2004,
September 27, 2003 and September 28, 2002, respectively, which are not
included in consolidated net sales of the Company.
12. INCOME TAXES
The provision for income taxes reflects Federal income taxes calculated on
a consolidated basis and state and local income taxes calculated by each
subsidiary on a nonconsolidated basis. For New York State and City income
tax purposes, the losses incurred by a subsidiary may only be used to
offset that subsidiary's income.
The provision (benefit) for income taxes attributable to continuing and
discontinued operations consists of the following:
Years Ended
------------------------------------------
October 2, September 27, September 28,
2004 2003 2002
---------- ------------- -------------
(In thousands)
Current provision (benefit):
Federal $2,168 $1,534 $(2,151)
State and local 514 316 872
------ ------ -------
2,682 1,850 (1,279)
------ ------ -------
Deferred provision (benefit):
Federal 259 3 2,784
State and local (403) (797) (86)
------ ------ -------
(144) (794) 2,698
------ ------ -------
$2,538 $1,056 $ 1,419
====== ====== =======
F-18
The provision for income taxes differs from the amount computed by applying
the Federal statutory rate due to the following:
Years Ended
------------------------------------------
October 2, September 27, September 28,
2004 2003 2002
---------- ------------- -------------
(In thousands)
Provision for Federal
income taxes (34%) $3,126 $1,488 $1,920
State and local income taxes net of Federal
tax benefit 334 208 575
Amortization of goodwill -- -- 26
Tax credits (591) (132) (755)
State and local net operating loss carryforward
allowance adjustment (414) (445) --
Other 83 (63) (347)
------ ------ ------
$2,538 $1,056 $1,419
====== ====== ======
Deferred tax assets or liabilities are established for: (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss carryforwards. The tax effects of items comprising
the Company's net deferred tax asset are as follows:
October 2, September 27,
2004 2003
---------- -------------
(In thousands)
Deferred tax assets (liabilities):
Operating loss carryforwards $ 2,128 $ 2,206
Operating lease deferred credits 377 458
Carryforward tax credits 5,024 5,472
Depreciation and amortization (1,598) (2,140)
Deferred gains (107) (151)
Valuation allowance (486) (900)
Inventory (270) (270)
Pension withdrawal liability 153 --
Asset impairment -- 228
------- -------
$ 5,221 $ 4,903
======= =======
A valuation allowance for deferred taxes is required if, based on the
evidence, it is more likely than not that some of the deferred tax assets
will not be realized. The Company believes that uncertainty exists with
respect to future realization of certain operating loss carryforwards and
operating lease deferred credits. Therefore, the Company provided a
valuation allowance of $486,000 at October 2, 2004, $900,000 at September
27, 2003 and $1,031,000 at September 28, 2002. The Company decreased its
allowance for the utilization of the deferred tax asset arising from state
and local operating loss carryforwards by $395,000 and $445,000 for the
years ended October 2, 2004 and September 27, 2003,
F-19
respectively, based on the merger of certain unprofitable subsidiaries into
profitable ones. The Company has state operating loss carryforwards of
$27,371,000, which expire in the years 2004 through 2018.
During the fiscal year ended September 27, 2003, the Company and the
Internal Revenue Service finalized the adjustments to the Company's Federal
income tax returns for the fiscal years ended September 30, 1995 through
October 3, 1998. The final adjustments primarily relate to: (i) legal and
accounting expenses incurred in connection with new or acquired restaurants
that the Internal Revenue Service asserts should have been capitalized and
amortized rather than currently expensed and (ii) travel and meal expenses
for which the Internal Revenue Service asserts the Company did not comply
with certain record keeping requirements or the Internal Revenue Code.
These settlements did not have a material effect on the Company's financial
condition.
13. OTHER INCOME
Other income consists of the following:
Years Ended
------------------------------------------
October 2, September 27, September 28,
2004 2003 2002
---------- ------------- -------------
(In thousands)
Purchasing service fees $ 61 $ 58 $123
World Trade Center Recovery Grants (a) -- 508 --
Other 534 407 338
---- ---- ----
$595 $973 $461
==== ==== ====
(a) During the fiscal year ended September 27, 2003, the Company applied
for grants to the World Trade Center Business Recovery Grant Program
for four restaurants located in downtown New York. The program was
established to compensate businesses for economic losses resulting
from the September 11, 2001 disaster. As a result of our
applications, the Company received compensation of $508,000 during the
fourth quarter of the year ended September 27, 2003.
F-20
14. INCOME PER SHARE OF COMMON STOCK
A reconciliation of the numerators and denominators of the basic and
diluted per share computations for the fiscal years ended October 2, 2004,
September 27, 2003 and September 28, 2002 follows.
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(In thousands, except per share amounts)
Year ended October 2, 2004:
Basic EPS $6,657 3,305 $2.01
Stock options -- 139 (0.08)
------ ----- -----
Diluted EPS $6,657 3,444 $1.93
====== ===== =====
Year ended September 27, 2003:
Basic EPS $3,319 3,181 $1.04
Stock options -- 32 (0.01)
------ ----- -----
Diluted EPS $3,319 3,213 $1.03
====== ===== =====
Year ended September 28, 2002:
Basic EPS $4,229 3,181 $1.33
Stock options -- 25 (0.01)
------ ----- -----
Diluted EPS $4,229 3,206 $1.32
====== ===== =====
For the years ended September 27, 2003 and September 28, 2002, stock
options for shares of 168,000 and 178,000, respectively, were not included
in the computation of diluted EPS because to do so would have been
antidilutive.
F-21
15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
Fiscal Quarters Ended
------------------------------------------------
December 27, March 27, June 26, October 2,
2003 2004 2004 2004
------------ --------- -------- ----------
(In thousands except per share amounts)
2004
Food and beverage sales $24,592 $24,739 $32,504 $33,013
Net income from continuing operations 418 494 3,094 3,350
Net income (loss) from discontinued operations 138 (608) (34) (195)
------- ------- ------- -------
Net income (loss) 556 (114) 3,060 3,155
Per share information - basic and diluted:
Continuing operations basic $ 0.13 $ 0.15 $ 0.89 $ 0.99
Discontinued operations basic 0.05 (0.19) (0.01) (0.06)
------- ------- ------- -------
Net basic $ 0.18 $ (0.04) $ 0.88 $ 0.93
Continuing operations diluted $ 0.13 $ 0.15 $ 0.85 $ 0.95
Discontinued operations diluted 0.04 (0.19) (0.01) (0.06)
------- ------- ------- -------
Net diluted $ 0.17 $ (0.04) $ 0.84 $ 0.89
Fiscal Quarters Ended
---------------------------------------------------
December 28, March 29, June 28, September 27,
2002 2003 2003 2003
------------ --------- -------- -------------
(In thousands except per share amounts)
2003
Food and beverage sales $22,497 $22,338 $28,120 $29,099
Net income (loss) from continuing operations (91) 273 1,781 2,707
Net (loss) from discontinued operations (25) (243) (162) (921)
------- ------- ------- -------
Net income (loss) (116) 30 1,619 1,786
Per share information - basic and diluted:
Continuing operations basic $ (0.03) $ 0.05 $ 0.56 $ 0.85
Discontinued operations basic (0.01) (0.04) (0.05) (0.29)
------- ------- ------- -------
Net basic $ (0.04) $ 0.01 $ 0.51 $ 0.56
Continuing operations diluted $ (0.03) $ 0.05 $ 0.55 $ 0.84
Discontinued operations diluted (0.01) (0.04) (0.05) (0.29)
------- ------- ------- -------
Net diluted $ (0.04) $ 0.01 $ 0.50 $ 0.55
F-22
16. STOCK OPTION RECEIVABLES
Stock option receivables include amounts due from officers and directors
totaling $364,000 and $655,000 at October 2, 2004 and September 27, 2003,
respectively. Such amounts which are due from the exercise of stock options
in accordance with the Company's Stock Option Plan are payable on demand
with interest (4.25% at October 2, 2004 and 4% at September 27, 2003).
17. RELATED PARTY TRANSACTIONS
Receivables due from officers and directors, excluding stock option
receivables, totaled $52,000 at October 2, 2004 compared to $85,000 at
September 27, 2003. Other employee loans totaled $278,000 at October 2,
2004 compared to $166,000 at September 27, 2003. Such loans bear interest
at the minimum statutory rate (2.24% at October 2, 2004 and 1.52% at
September 27, 2003).
18. SUBSEQUENT EVENTS
On October 12, 2004 the Company announced that the Board of Directors
instituted a dividend policy by declaring a regular quarterly dividend of
$.35 a share on the Company's outstanding common stock beginning November
1, 2004 to shareholders of record at the close of business October 22,
2004. On November 1, 2004 the Company paid dividends of $1,187,000.
******
F-23
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ARK RESTAURANTS CORP.
By: /s/ Michael Weinstein
------------------------------------
Michael Weinstein
President and Chief Executive
Officer
Date: December 31, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been duly signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael Weinstein Chairman of the Board President, December 31, 2004
- ---------------------------- Chief Executive Officer and
(Michael Weinstein) Director
/s/ Vincent Pascal Senior Vice President, December 31, 2004
- ---------------------------- Secretary and Director
(Vincent Pascal)
/s/ Robert Towers Executive Vice President, December 31, 2004
- ---------------------------- Treasurer, Chief Operating
(Robert Towers) Officer and Director
/s/ Robert Stewart Chief Financial Officer December 31, 2004
- ----------------------------
(Robert Stewart)
/s/ Marcia Allen Director December 31, 2004
- ----------------------------
(Marcia Allen)
/s/ Steven Shulman Director December 31, 2004
- ----------------------------
(Steven Shulman)
/s/ Paul Gordon Senior Vice President December 31, 2004
- ---------------------------- and Director
(Paul Gordon)
/s/ Bruce R. Lewin Director December 31, 2004
- ----------------------------
(Bruce R. Lewin)
/s/ Arthur Stainman Director December 31, 2004
- ----------------------------
(Arthur Stainman)
/s/ Edward Lowenthal Director December 31, 2004
- ----------------------------
(Edward Lowenthal)
Exhibits Index
3.1 Certificate of Incorporation of the Registrant, filed with the Secretary
of State of the State of New York on January 4, 1983.
3.2 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of New York on
October 11, 1985.
3.3 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of New York on
July 21, 1988.
3.4 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of New York on
May 13, 1997.
3.5 Certificate of Amendment of the Certificate of Incorporation of the
Registrant filed on April 24, 2002 incorporated by reference to Exhibit
3.5 to the Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 30, 2002 (the "Second Quarter 2002 Form 10-Q").
3.6 By-Laws of the Registrant, incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-18 filed with the
Securities and Exchange Commission on October 17, 1985.
10.1 Amended and Restated Redemption Agreement dated June 29, 1993 between
the Registrant and Michael Weinstein, incorporated by reference to
Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 2, 1999 ("1994 10-K").
10.2 Form of Indemnification Agreement entered into between the Registrant
and each of Michael Weinstein, Ernest Bogen, Vincent Pascal, Robert
Towers, Jay Galin, Robert Stewart, Bruce R. Lewin, Paul Gordon and
Donald D. Shack, incorporated by reference to Exhibit 10.2 to the 1994
10-K.
10.3 Ark Restaurants Corp. Amended Stock Option Plan, incorporated by
reference to Exhibit 10.3 to the 1994 10-K.
10.4 Fourth Amended and Restated Credit Agreement dated as of December 27,
1999 between the Company and Bank Leumi USA, incorporated by reference
to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 2, 1999.
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, as amended, incorporated
by reference to the Registrant's Definitive Proxy Statement pursuant to
Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. 1)
filed on March 16, 2001.
10.6 Lease Agreement dated May 17, 1996 between New York-New York Hotel, LLC,
and Las Vegas America Corp., incorporated by reference to Exhibit 10.6
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
October 3, 1998 (the "1998 10-K").
10.7 Lease Agreement dated May 17, 1996 between New York-New York Hotel, LLC,
and Las Vegas Festival Food Corp., incorporated by reference to Exhibit
10.7 to the 1998 10-K.
10.8 Lease Agreement dated May 17, 1996 between New York-New York Hotel, LLC,
and Las Vegas Steakhouse Corp., incorporated by reference to Exhibit
10.8 to the 1998 10-K.
10.9 Amendment dated August 21, 2000 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 2000 (the "2000 10-K").
10.10 Amendment dated November 21, 2000 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.10 to the 2000
10-K.
10.11 Amendment dated November 1, 2001 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 29, 2001 (the "2001 10-K").
10.12 Amendment dated December 20, 2001 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.11 of the 2001
10-K.
10.13 Amendment dated as of April 23, 2002 to the Fourth Amended and Restated
Credit Agreement dated as of December 27, 1999 between the Company and
Bank Leumi USA, incorporated by reference to Exhibit 10.13 of the Second
Quarter 2002 Form 10-Q.
10.14 Amendment dated as of January 22, 2002 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999 between the
Company and Bank Leumi USA, incorporated by reference to Exhibit 10.14
of the First Quarter 2003 Form 10-Q.
14 Code of Ethics, incorporated by reference to Exhibit 14.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 27, 2003.
16 Letter from Deloitte & Touche LLP regarding change in certifying
accountants, incorporated by reference from the exhibit included with
the Company's Current Report on Form 8-K filed with the SEC on January
15, 2004 and the Company's Current Report on Form 8-K/A filed with the
SEC on January 16, 2004.
*21 Subsidiaries of the Registrant.
*23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of J.H. Cohn LLP.
*31.1 Certification of Chief Executive Officer pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002.
*31.2 Certification of Chief Financial Officer pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002.
*32 Section 1350 Certification.
* Filed herewith.